The Economic Impact of Petroleum Deregulation in Lagos State (1960-2007)

THE EFFECTS OF GOVERNMENT’S DEREGULATION OF THE

DOWNSTREAM PETROLEUM SUBSECTOR ON THE

ECONOMY OF LAGOS STATE, NIGERIA.

1960-2007

BY

STEPHEN LAZI AKHERE

(MATRIC. NO.NSU/SS/038/PHD/2006/2007)

A Ph.D.

THESIS SUBMITTED TO THE DEPARTMENT OF POLITICAL

SCIENCE, FACULTY OF SOCIAL SCIENCES IN PARTIAL

FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF

DOCTOR OF PHILOSOPHY DEGREE OF THE NASARAWA STATE

UNIVERSITY, KEFFI, NIGERIA.

SEPTEMBER, 2O10.

DECLARATION

I, Stephen Lazi Akhere, certify that the thesis has been written by me

through a methodical study and readings. It has not been beforehand

presented in any application for a Doctor of Philosophy Programme. All

information used has been duly acknowledged in the references.

APPROVAL

This thesis entails “The Effects of Deregulation of the Downstream Petroleum

Subsector on the Nigerian Economy, 1999 -2007” has been read and approved as

meeting the requirement for the Award of a Doctor of Philosophy Political Economy

of the Department of Political Science, Nasarawa State University, Keffi, Nigeria.

Prof. Shuaibu .A. Ibrahim Date

Supervisor

Prof. Shuaibu .A. Ibrahim Date

Dean, Faculty of Social Sciences

Dr. Abdulliahi .S. Modibbo Date

Head of Department

Prof. Zaynab Alkali Date

Dean, Post-Graduate School

External Examiner Date

DEDICATION

This research work is dedicated to the almighty God who granted me strength and to

my aged mother Mrs Isebhore, my most patient wife, Mrs Stephen Gloria Ajiri, my

children; Jethro, Bethel, and Barachel who encouraged me throughout the period of

the research.

Finally, “this research work” is dedicated to those in search of honest means of

acquiring knowledge and the justification of such acquisition through honest

contribution to the furtherance of discipline of the knowledge so acquired.

Stephen Lazi Akhere.

ACKNOWLEDGEMENT

It is not be possible to acknowledge all debts of gratitude to all those who assisted me

in no little measure in the writing of this dissertation.

special gratitude goes to my supervisor, Prof. S. A. Ibrahim, an uncompromised

academician, Dean, Faculty of Social Sciences, Prof. D.U. Sangari, Head of

Geography Department, Prof. Sam Amdii, Prof. Inno Ukeji, Dr. Abdullahi.S.

Modibbo, Head, Political Sci ence Department, Dr. Abdullahi Yamma and Mallam

Yahaya Adadu all of Nasarawa State University whom l have benefited immensely

from. They never stopped vetting line -by-line to every sentences and phrase written

by me. And this became a wealth of knowledge t hat finally gave birth to this

dissertation.

To my acquaintances and colleagues, Emmauel Etaderhi, David Jacho, Musa Patrick,

Emmanuel Edoho, Akanmonde Funsho, Ejenavi Odafe -Jones, Ogbona Chikezie,

Ajayi Adesola .F. O.O. Agbeje, Engr. N.P. Essang , my twin brother, Stephen Mavis

Odion, and all others too numerous to mention here, who showed so much concern

one way or the other towards the realization and the completion of this dissertation. I

am also grateful to various corporate library staff, and stenograp hers who assisted me

in no little measure. God bless you all.

TABLE OF CONTENTS

CHAPTER ONE

1.0. Introduction

1.1. Background of the Study ………………………………………….. 1-6.

1.2. Statement of the Problem…………………………………………….. 6-8.

1.3. Aims and Objectives of the Study………………………………….. 8-9.

1.4. Research Questions……………………………………………………….. 9-10.

1.5. Research Propositions……………………………………………….. 10-11.

1.6. Significances of the Study …………………………………………. 11-13.

1.7. Scope of the Study ……………………………………………………. 13-14.

1.7.1. The Study Area……………………………………………………………………… 14-33.

1.8. Limitations of the Study……………………………………………. 33.

1.9. Organisational Structure of the Thesis ……………………… 34.

1.10. Definition of terms…………………………………………………….35-44.

CHAPTER TWO

2.0. LITERATURE REVIEW AND THEORETICAL FRAMEWORK:

2.1. Concept of Public Policy ………………………………………………. 45-51.

2.2. Concept of Deregulation Policy……………………………………… 51-67.

2.3. Deregulation Policy Change and its Implementation in Nigeria

……………………………………………………………………………………… 68-72.

2.4. Policy of Regulation, Deregulation, Privatization and

Liberalization in Nigeria ……………………………………………………. 73-77.

2.5. Deregulation in Developed Countries …………………………… 78-84.

2.6. Deregulation in Developing Countries ………………………… 85-91.

2.7. Theoretical Framework …………………………………………. 91-97.

2.7.1. Justification of Theory…………………………………………. 97-100.

CHAPTER THREE

3.0. RESEARCH METHODOLOGY

3.1. Research Design ………………………………………………………… 101-102.

3.2. Sources of Data…………………………………………………………… 102-107.

3.3. Target Population…………………………………………………… 107-108.

3.4. Population Sample……………………………………………………….. 108.

3.5. Sample and Sampling Techniques………………………………….. 108.

3.5.1. Questionnaires……………………………………………………………………. 119-110.

3.5.2. Method of Questionnaire Administration…………………………………….. 110.

3.6. Methodological Challenges……………………………………………111.

3.7. Method of Data Analysis………………………………………….. 111-112.

CHAPTER FOUR

4.0. DEREGULATION POLICIES IN THE NIGERIA PETROLEUM

DOWNSREAM SUBSECTOR

4.1. Colonial Era ………………………………………………………………… 113-116.

4.2. The Military Regimes and Expansion of the Nigerian Petroleum

Sector………………………………………………………………………………… 116-123.

4.3. Structural Adjustment Programme and the Nigerian Oil Industry

………………………………………………………………………………………….. 123-130.

4.4. The Collapse of Nigerian Oil Economy, 1980-1995 ……………. 130-135.

4.5. Petroleum Products Prices and Subsidies in Nigeria …………… 136-137.

4.5.1. Component Cost……………………………………………………………………………. 137.

4.5.2. Exploration Cost……………………………………………………………………… 137-138.

4.5.3. Development Cost ……………………………………………………………………………. 138.

4.5.4. Operational Cost………………………………………………………………………… 138-139.

4.4.5. Refining Cost……………………………………………………………………………. 139-140.

4.5.6. Distribution Cost………………………………………………………………………………. 140.

4.5.7. Marketing Margins …………………………………………………………………………. 141.

4.5.8. Total Cost……………………………………………………………………………………….. 141.

4.5.9. Effect/Politics of oil subsidy on the Economy of Nigeria………………….141-148.

4.6. Deregulation Policy in Nigeria………………………………………… 148-165.

4.7. Effects of Deregulation on Lagos State Economy…………….. 166-174.

4.8. Constraints to Deregulation Policy in Nigeria …………………… 174-179.

4.8.1. The Impact of Petroleum Products pricing on the economy……………. 179-185.

4.8.2. Analysis of Changes in Petroleum Pump prices in Nigeria……………… 185-191.

4.8.3. Effects of Exchange Rate on Petroleum Pricing…………………………….. 192-196.

4.9. Macroeconomic Indicator of Deregulation……………………………197-211.

4.9.1. Socioeconomic Benefits of Deregulation Policy in Nigeria……………… 211-214.

CHAPTER FIVE

5.0. ANALYSIS AND DISCUSSION OF DATA ON THE EFFECTS OF

DEREGULATION IN LAGOS STATE, NIGERIA.

5.1. Data Analysis ……………………………………………………………………… 215-217.

5.2. Respondents’ PENGASSAN view on Deregulation Policy……… 218-221.

5.3. Respondents’ NUPENG view on Deregulation Policy……………..222-225.

5.4. Respondents’ OIL COMPANIES Opinion on Deregulation Policy

…………………………………………………………………………………………… 225-228.

5.5. Respondents’ PUBLIC Opinion’ on Deregulation Policy……. 229-232.

5.6. Respondents Involvement and Assessment of Deregulation Policy

………………………………………………………………………………….. ……. 231-240.

5.7. Implementation of Deregulation Policy in Lagos State…………….240-255.

5.8. Effect of Deregulation on Lagos State Economy…………………… 256-271.

CHAPTER SIX

6.0. SUMMARY, CONCLUSION AND RECOMMENDATION

6.1. Summary………………………………………………………… 272-274.

6.2. Conclusion………………………………………………………274-278.

6.3. Recommendations………………………………………………. 278-284.

REFERENCES

A. Books………………………………………………………. 285-289.

B. Journals…………………………………………………… 290-292.

C. Websites…………………………………………………… 293-294.

D. News Papers/Magazines…………………………………. 295-296.

E. Unpublished Works………………………………………. 296-298.

Appendix 1: Questionnaires ……………………………………… 299-303.

Appendix 2: Petroleum Industry Bill (PIB) …………………………… 304.

Appendix 3: PPPRA Current Statutory Templates for the determination of Petroleum

Pump Prices; thus: PMS, HHK, AGO, and

DPK……………………………………………….. 305-309.

LIST OF TABLES

• Holding Capacity of Petroleum Depots (All Figures in M3)………… 29.
• Draught Limitation of Petroleum Receiving Jetties ……………………. 32.
• Population Sampled Cases ……………………………………………………… 109.
• Holding of Bank Development Stock (N Million) ………………………. 127.
• Nigeria Balance of Payment of Oil & Non-oil……………………………. 170.
• Analysis of Changes in Petroleum Pump prices in Nigeria……188-189.
• PMS Supply Price & other Market Indicators……………………….. 192.
• Selected Macroeconomic Indicators …………………………………. 198.
• Current Revenue of the Federal Government ……………………. 200-206.
• Federal Government Account Operation (N Million) ………… 207.
• Distribution of Questionnaires………………………………………………… 216.
• Respondents’ PENGASSAN view on Deregulation Policy……… 218.
• Respondents’ NUPENG view on Deregulation Policy ……………… 221.
• Respondents’ Oil COMPANIES Opinion on Deregulation Policy 225.
• Respondents’ PUBLIC Opinion on Deregulation policy………… 229.
• Respondents’ Assessment on the level of Products Availability… 232.
• Respondents’ Assessment of Price increase vis -a-vis Quenes at Petrol Stations

as a result of removal of government subsidy ……………. 234.

• Respondents’ Assessment on the removal of government subsidy, its Positive

Impact on the Economy ……………………………………………. 235.

• Respondents’ Assessment of Deregulation and its effect on Price Volatility of

Petroleum Products ……………………………………………… 237.

• Respondents’ Opinion on various attributes to Petroleum Products Price

Volatility…………………………………………………………………….. 238.

• Respondents’ Assessment of the impact of government cushion measures

resulting from Price increase …………………………………. 240.

• Respondents’ Assessment of the effect of implementation of deregulation

policy in Nigeria ………………………………………………. 242.

• Respondents’ opinion on possible internal constraints against effectiveness of

the Policy ……………………………………………………. 244.

• Respondents’ opinion on possible external constraints against effe ctiveness of

the Policy……………………………………………………. 246.

• Respondents’ Opinion on possible benefits from Deregulation of the Petroleum

downstream subsector………………………………………….. 248.

• Views on Improvement on the Existing Local Refineries Capacity Utilisation

or Encourage the establishment of new refineries …… 251.

• Respondents’ views on the impact of capacity utilisation of local refineries and

the need to establish new ones for products avai lability and price stability

………………………………………………………………. 252.

• Respondents’ views on the effectiveness/implementation of

deregulation policy in the oil & gas industry ……………………………. 254.

• View the effects of deregulation policy on Lagos/Nigeria economy

…………………………………………………………………………………………. 255.

• Respondents’ views on the achievement of deregulation policy as facilitator of

the sector for socioeconomic change in Nigeria ……. 257.

• Respondents’ views on policy given equal level playing ground to stakeholders

in the oil & gas sector ………………………………………… 259.

• Respondents’ views on deregulation policy as a motivating factor to increase

economic activities in Nigeria …………………………………… 261.

• Respondents’ views on deregulation policy as a tool for expanding productivity

capacity of the economics of Nigeria ……………………. 263.

• Respondents’ views on excessive control of government functionaries and

other internal factors affecting the implementation of deregulation policy

……………………………………………………………… 264.

• Respondents’ views on the need to redesign the oil & gas policy to attain its

statutory objectives ……………………………………………… 266.

• Respondents’ views on measures to be taken for the eradication of the

observed problem associated with the policy implementation. 268.

LIST OF FIGURES

Fig.4.3.1. Holding of Development Stock (N in Millions) ……………… 128.

Fig.4.8.1. Petroleum Price Increase ……………………………………….. 190.

Fig. 4.8.2. Line Chart on PMS supply Via other indicators ……………. 193.

Fig. 5.1.1. Distribution of questionnaire to respondent………………… 216.

Fig. 5.2.1. Respondents PENGASSAN…………………………………… 219.

Fig. 5.3.1. NUPENG result analysis in percentage …………………….. 222.

Fig. 5.4.1. Oil companies result analysis in percentage………………… 226.

Fig. 5.5.1. Public result analysis in percentage………………………………….. 230.

Fig. 5.6.1. Respondent’ assessment of the level of products availability..233

Fig. 5.6.2. Respondents’ assessment of price increase/queues at petrol stations as a

result of the removal of government subsidy………………… 234.

Fig. 5.6.3. Respondents’ assessment on the rem oval of govt. subsidy its positive

impact on the economy…………………………………………. 236.

Fig. 5.6.4. Respondents ’ assessment of deregulation and its effect on price volatility

of petroleum products………………………………………… 237.

Fig. 5.6.5. Respondents ’ opinion on variou s attributes to petroleum product price

volatility ………………………………………………………………. 239.

Fig.5.7.1. Respondents ’ assessment of the impact of govt. cushions measures

resulting from price increase……………………………………………….. 241.

Fig. 5.7.2. Respond ents’ assessment of the effect of implementation of deregulation

policy in Nigeria…………………………………………… 243.

Fig. 5.7.3 Respondents opinion on possible internal constraints against deregulation

Policy…………………………………………………………………….. 245.

Fig. 5.7.4. Respondents’ opinion on possible external constraints against

effectiveness of deregulation Policy……………………………………. 247.

Fig. 5.7.5 Respondents opinion on possible benefits of deregulation of the petroleum

downstream subsector……………………………………………….. 249.

Fig. 5.7.6. Views on Improvement on the exiting Local Refineries Capacity or

encourage the establishment of new refineries……………………………. 251.

Fig. 5.7.7. Respondents’ views on the impact of capacity utilization of local refineries

and the need to establish new ones for products availability and price

stability………………………………………………………………………………. 253.

Fig. 5.7.8. Res pondents’ views on the effectiveness/implementation of deregulation

policy in the oil & gas industry ………………………………… 254.

Fig. 5.8.1. Views on the effect of deregulation on Lagos/Nigeria Economy

………………………………………………………………………………………………………… 256.

Fig. 5.8.2. Respondents’ views on the achievement of deregulation Policy as

facilitator of the sector for socioeconomic change in Nigeria……………. 258.

Fig. 5 .8.3. Respondents’ views on policy giving equal level playing ground to

stakeholders in the Oil & Gas sector …………………………………………. 259.

Fig. 5.8.4. Respondents’ views on deregulation Policy as a motivating factor to

increase economic activities in Nigeria……………………………………….. 261.

Fig. 5.8.5. Respondents’ views on deregulation Policy as a tool for expanding

productivity capacity for the economy of Nigeria …………… 263.

Fig. 5.8.6. Respondents’ v iew on excessive control of government functionaries and

other internal factor affecting the implementation of the

policy……………………………………………………………………………………….. 265.

Fig. 5.8.7. Respondents’ vie w on the need to redesign the Oil & Gas policy effective

implementation to attain its statutory objectives……………….. 267.

Fig. 5.8.8. Respondents’ view on measures to be taken for the eradication of the

observed problems associated with policy implementation………….. 269.

ABSTRACT

The revolution in the Oil and Gas industry and availability of petroleum products to

the final consumer now forms the mainstay of business activities in the downstream

subsector in Nigeria. This sector contributes about 65 -70 percent of the total socio –

economic activities including a major energy generator to all sectors of the economy.

Deregulation policy of the downstream subsector is the action -plan of the

government pertaining to petroleum sector of the economy, describing the intended

objectives and ho w to achieve them. The policy objective is to improve petroleum

supply and distribution network and better service delivery. Notwithstanding the

implementation of this policy, the nation is still confronted with unending problems

occasioned by ineffectiveness of policy direction, low capacity utilization of the local

refineries, inadequate products supply for local consumption, price volatility, etc.

These constraints have assumed worrisome proportions as a result of the inability of

the policy implementati on to attain its statutory objectives. It is on this premise that

this study is saddled with the task of examining the real and potential prospects for

fundamental changes in the formation and apparatus of the petroleum downstream

subsector. Furthermore, t his study sought to indisputably examine the effects of

deregulation of petroleum downstream subsector on the Nigerian economy with

Lagos State as a point of reference. The outcomes will possible assist policy makers

and stakeholders so as to make the nece ssary adjustment towards its successful

implementation. Both Primary and Secondary sources of data were obtained from

relevant establishment to provide a platform for the comparative and theoretical

discussion. Primary data was obtained from designed quest ionnaire administered on

respondents within Nigeria via Lagos State. Secondary data on the other hand was

sourced from existing publications on oil and gas and non -published materials. The

major findings of the study indicate that the challenges facing the development of the

sector are enormous; thus effective policy implementation has become a challenge to

the government to enhance the sectors much needed structural transformation, which

was impelled by the current global economic recession. The implementa tion of the

deregulation policy in the petroleum downstream subsector has not been effective,

thus requiring the necessary adjustments and changes that will reposition the

downstream subsector, so as to derive the benefits expected from the policy. The

studies therefore opines that for effective products and service delivery by the sector,

and to successfully transform the nation’s economy, the interest of the citizenry and

their involvement in the Oil and Gas industry must be taken into consideration and

above all, the establishment of a broad -based deregulation of the downstream

subsector devoid of monopoly in any disguise would trigger economic

industrialization in the country.

CHAPTER ONE

INTRODUCTION

1.1. BACKGROUND TO THE STUDY

The dominance of oil in the global economic scene continues to engage the attention

of both rich and poor nations alike, the consumer nations as well as exporters of this

apparently industrialised commodity in the economi c wheels of industrialisation will

continue to generate heat in the world market for decades to come, (Todaro, 1983).

After the amalgamation of 1914, interest in Nigerian oil started with an ordinance

making any oil and mineral under Nigerian soil legal pr operty of the C olonial

Masters in1938. The development in the petroleum sector came to be aft er the

colonial period of 1960s where agriculture was the mainstay of Nigerian economy

with over 70 percent of gross domestic product (GDP) contribution to the wea lth of

the nation.

As at 2000, crude oil exports accounted for more than 98 percent of export earnings

and about 83 percent of federal government revenue. It also provides 95 percent of

foreign exchange earnings , and about 65 percent of government budgetary revenues.

Hence, it plays a vital role in shaping the economic and political destiny of the

country. Although Nigeria’s oil industry was founded at the beginning of the century,

it was not until the end of the Nigeria civil war (1967 – 1970) that the oil industry

began to play a prominent role in the economic life of the country, (Gbadebo, 2008).

Nigeria is the 7th largest exporter of crude oil in the world, at the same time the

country has one of the highest rates of poverty in the world. However the position

and contribution of agriculture to the Nigerian economy has consistently been on a

decline since the discovery of oil and the population engaged in agriculture has

dwindled, (Ajakaiye, 2001).

Oil was discovered in Nigeria in 1956 at Oloibiri in the Niger Delta after half a

century of exploration. Before then, agricultural produces were the main engine of

the Nigerian economy contributing about 70 percent single digit contributor to

national income (NI), with the balance of 30 percent coming from other sectors

(Textile and Manufacturing Industries), (Adedipe, 2004). The discovery was m ade

by Shell -BP, at the time the sole concessionaire. Nigeria joined the ranks of oil

producers in 1958 when its first oil field came on stream producing 5,100 b arrels per

day.

Nigeria’s proven oil reserves are estimated between 22 and 35.3 billion barrels. The

reserves make Nigeria the tenth most petroleum-rich nation, and by far the most

affluent in Africa. In mid -2001 Nigeria’s crude oil production was averaging around

2.2 million barrels p er day. Nearly all of the country’s primary reserves are

concentrated in and around the delta of the Niger River , but off -shore rigs are also

prominent in the well -endowed coastal re gion. Nigeria is one of the few major oil –

producing nations still capable of increasing its oil output. Unlike most of the other

OPEC countries, Nigeria is not projected to exceed peak production until at least

1. The reason for Nigeria’s relative unproductiveness is primarily OPEC

regulations on production to regulate prices on the international market. More

recently, production has been disrupted intermittently by the protests of the Niger

Delta’s inhabitants, who feel they are being exploited. Over the past forty years the oil

industry has made a variety of contributions to the Nigerian economy. These have

included the creation of employment opportunities; local e xpenditure on goods and

services; contribut ions to government revenues, gross domestic product; foreign

exchange reserves; and the supply of energy to industry and commerce. The

nationalistic fervour that followed the attainment of independence in 960 made

Nigeria to evolve a seven -year first National Development Plan (1962 -968). The

focus of that plan was to industrialize the economy quickly through the import

substitution strategy. The implementation of this plan was chequered because of the

political ins tability that eventually led t o the civil war between 1967 and 1970,

(Nnanna, Alade & Odoko, 2003).

This scenario was t o change massively in the 1970s as t he disruptions to economic

activities by the civil war gave way to broad economic policies for reconc iliation and

reconstruction. As Nigeria gradually settled into normal economic activities, the first

major economic policy of the 1970s was introduced. This was the Udoji

Commission’s comprehensive review and evaluation of jobs in the public service,

which led to new pay and benefits structure, representing the first policy impact of

the oil wealth. This changed the psyche and consumption habit of the average

Nigerian, considered prosperous and able to afford most of the go od things of life.

(Adedipe, 2004)

This was followed by the Indigenization Decree in 1974 and 1977, the latter more

comprehensive and far-reaching. The policy sought to put the commanding heights of

the Nigerian economy in the hands of Nigerians within the context of nationalism.

Several f oreign investors divested from Nigeria, not by choice, but because of the

policy that made it impossible for them to own certain ventures 100 percent, or not

more than 60 percent or 40 percent as the case may be. It was in the process of

implementing this policy that oil became a major revenue earner and the policy

fundamentals changed, (Tell Magazine, August 2008).

As oil revenue ballooned in 1973/1974, the Nigerian Government embarked on

several ambitious and expensive projects, having little or no econom ic value. There

was no concrete economic programme that would do any of the two important growth

triggers in Nigeria:

• Unleash the entrepreneurial energy of the typical resilient Nigerian;
• Small and Medium Scale Enterprises (SMEs) in the non-oil sector.

By 1978, there was a downturn in oil earnings as crude oil prices dipped in the

international markets and the first major economic policy, labelled ‘Belt Tightening’,

was introduced by Obasanjo’s military government. Following closely in 1979,

Nigeria resorted to the international capital markets to raise external loans

(commonly referred to as the “jumbo loans”) to fund development projects that were

hard to place. The 1980s brought in its wake, three major economic policies namely:

• The recomme ndations of the Onosode Commission on pay structure in

Government Parastatals adopted in 1981.

• The Economic Stabilization Act of 1982, which was the response of the

Shagari’s civilian administration to dwindling oil earnings and major external

sector imbalances.

• The Structural Adjustment Programme (1986 -1988) by Babangida’s military

administration, with the active support of the World Bank. This was Nigeria’s

first bold step on wide -ranging reforms in almost all the major sectors of the

economy. It recorde d some significant gains for the first two years, but

suffered a setback when certain aspects of it were reversed and inconsistencies

(internal and sectoral) became prevalent, (Anyawu, 1992).

Each of these policies was reactive to developments in the inter national oil markets,

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

Oil and Policies in the 1990s might be described as a period of reversals and lost

opportunities. The series of reforms and reversals of the late 1980s took i ts toll on the

real sector of the economy and the effects were transmitted to the financial system.

This was also the period Nigeria experienced some windfall gains from the strong oil

prices as a result of the Coalition Forces/Iraqi war of 1990. The exper imentation with

deregulation and liberalization was truncated in 1994 with the advent of the military

administration led by late Abacha.

Up until June 2003, there was no clear economic direction . Weak institutional legal

environment stymied the benefits t hat would have accrued from oil earnings, which

had started to f irm up. The entire scenario changed in 2004, with the formal

announcement and presentation of the Federal Government’s economic agenda,

tagged the National Economic Empowerment and Development Strategy (NEEDS).

NEEDS is a medium -term strategy that seeks to implement series of reforms that

would lay a solid foundation for a diversified Nigerian economy by 2007. It sets

specific goals in major growth indices as wealth creation, employment generat ion,

institutional reforms and social charter, (Ajakaiye, 2001).

1.2. STATEMENT OF THE PROBLEM

In recent times, as strategic as the oil and gas is to the micro and macroeconomic

activities of the nation’s economy, the downstream subsector is characterised with

ineffectiveness and inefficiency due to long neglect of the local refineries, sectorial

corruption, obsolete legal framework for the oil and gas sector; Nigeria’s import

dependence economy and imperialistic policy for wider varieties of necessary

resources for development which basically placed us in continuous dependence on

western ideology perpetuated by the interference of domestic and Western elite ,

(Ajakaiye, 2001).

That Nigeria is still underdeveloped is ironic as most nations at par with her at the

time of her independence in 1960 have found a place for themselves in the comity of

emerging market economies of the world. Such countries i nclude Malaysia, Ghana

and South Africa. It is even more pathetic as the country continues to slip further

down the aisle of problem nations in the socio -economic and political sphere. The

identified problem unfortunately is with the way and manner the petro l-economy has

been mismanaged by government and players of the industry, (Adelman, 1976).

Over the years, ind ustry watchers, opinion mo ulders and civil rights campaigners

have been very critical of the role being played by stakeholders and government in

the oil and gas industry vis -à-vis their comm itment to policy implementation , these

were viewed as complaisant attitude of investors towards better service delivery, as

they are more concern ed with profiteering and individual enrichment for the benefit

of their class gave rise to numerous problems which have been identified as critical to

the success of any resol ution of the problems of the oil and gas industry. These

include:

i. Low capacity utilisation of the four States -owned refineries including

petrochemical plants due to poor maintenance culture and its inherent

cost implication;

ii. Ineffective and inefficiency of Government Policy Implementation,

iii. Petroleum Products Price volatility as a result of inadequate supply and

poor distribution network system resulting to protracted queues at filling

stations,

iv. Illegal bunkering and cross-border smuggling and hoarding of petroleum

products;

v. Burden of subsidy on national economy;

vi. Inability to attract investment in midstream while licensed refineries

could not operate; and

vii. The s orry state of disrepair of logistic facilities (pipelines, depots and

jetties) due to vandalism across Lagos State. (RSCRPPSD, 2000).

All of the above are remote causes for the lingering, and intractable crisis associated

with the downstream subsector of the petr oleum industry in Nigeria for close to four

decades now and these are predictable outcome of government failed policy

programmes.

Hence, the deregulation policy as introduced by the Federal Government has the

ultimate goal of liberal izing the Nigerian economy. So if any country is suitable for

the research on the effects of deregulation of the downstream petroleum subsector on

both the economy and rural w ealth creation is Nigeria and Lagos State a place to

focus.

1.3. AIMS AND OBJECTIVES OF THE STUDY

The aim of this research is to examine the effect of government deregulation policy

on the petroleum downstream subsector of the economy of Nigeria.

Pursuant to the above purpose, this study aims at achieving the following objectives:

i. To verify and examine various policies in the downstream subsector of

the petroleum industry;

ii. To identify and examine policy issues on the petroleum downstream

deregulation;

iii. To verify and evaluate the effects of the deregulation policy in Nigerian

economy;

iv. To assess the role of constrain (operates) in the deregulation policy

implementation;

v. To make appropriate recommendations in the downstream petroleum

sector;

vi. To examine the experiences of other countries’ deregulation policy;

The combination of the above mentioned aims/objectives provided us the insights

that contributed in answering the research questions.

1.4. RESEARCH QUESTIONS

In order to effectively answer the research question s and present an empirical study,

the few empirical questions are formulated:

i. Is the deregulation of petroleum downstream subsector justified in terms

of socio-political readiness?

ii. Is deregulation a catalyst for the repositioning of socio -economic

development?

iii. Is there uniform pump pricing of petroleum products across the country

in the current regulatory system?

iv. What role does government play in ensuring the actualisation of

deregulation policy?

v. Is there a level playing ground for investors in the policy?

vi. Could the existing refineries be improved upon to meet up with the

demand challenges?

vii. What are the impacts of subsidies on the Nigeria economy?

viii. What factors are responsible fo r the determinant of petroleum products

pricing?

ix. In what ways can deregulation reposition the economy?

1.5. RESEARCH PROPOSITIONS

To adequately carry out the research work, the following propositions are made:

i. The deregulat ion policy has not impacted pos itively on the petroleum

downstream subsector and the economy at large;

ii. The policy/strategies of deregulation to make petroleum products

available to Nigerians and the people of Lagos State in particular as well

as achieving price stability have not been effective;

iii. Is to allow market fundamentals i.e., economic indicators that will

strengthen the pricing regime of the policy;

iv. The measure taken by the government to deregulate the petroleum

downstream subsector with a view to making it competitive has not met

the desire objective since NNPC is still monopolizing the business of the

sector;

v. The measure taken by the government to cushion price volatility through

subsidization of Petroleum products will only stagnate the holistic

development of other infrastruc ture as fewer individuals stand to enjoy

subsidy against the larger population, hence it is of no significant to

economy development;

vi. The deregulation of the petroleum downstream subsector has brought

the desire competition in the sector;

vii. The challenge to effective implementation of the deregulation policy

towards the efficient and effective performance of the petroleum

downstream subsector is yet to be countered;

viii. The partial deregulation currently experienced in the country has

encouraged investment and job creation.

ix. Price volatility will be a thing of the past as market fundamentals will

determine petroleum products pricing.

1.6. SIGNIFICANCE OF THE STUDY

The significance of this research work is very tasking and demanding since it bothers

on both national and international issues that will be of immense benefit to political

economy scholars, readers, all tiers of government establishment and apparatus,

students/researchers alike and all those in search of knowledge. The extremes have

always been whether government deregulatory policy of the downstream subsector

should reflect their economic opportunities cost. However, since the return to

democracy in 1999, the policy thrust seems to favour Market -based economic

approach that is, Import Price Parity (IPP) and Export Parity of Products (EPP).

But over the years, the implementation of domestic Petroleum Products Pricing

Policies in the petroleum Sector has led to 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, (Posner & Richard, 1992)

The bond of contention is that if the deregulation policy of the downstream subsector

of the economy, favours market -based pricing of domestic petroleum products, can

market work in political environment that may not to lerate the short -term price

volatility (with all the pains associated with it) that may bring the expected long -term

efficiency in the economy. The counter -intuition argument however is that, to the

contrary, market fundamentals competitive pricing (as opp osed to administered

pricing regimes) will succeed in producing an improvement (a change that increases

social net benefits but does not necessarily make everyone better off) on the long-run,

(Atiku, 2005).

The research will contribute to petroleum econom y, downstream petroleum policy

guidelines, and public policy analysis fact -files, especially those analysts of

petroleum and gas economics, initiators of energy pricing policy, government reform

agenda; particularly in the exportation of oil by developing countries. Also, we will

try to bridge the gaps through research and knowledge by harnessing the theories of

traditional standard economic empirical approach and theories of political economy

approach in order to synchronise both approaches for a better un derstanding of the

effects of government deregulation policy of the downstream petroleum subsector on

micro and macro-economic indices of the economy.

This approach will provide a unique theoretical case -study of Nigerian downstream

deregulation regime un der a democratic scenario. However, my argument is towards

the benefits associated to a well driven deregulatory petroleum downstream subsector

economy in the long run, more so, my reservation is our inability to maintain and

sustain the policy if not bein g politicised or hijacked by elites. Furthermore, the

approach to this research is considered suitable as it examines related global

economic production of goods and services, wealth distribution against the need for

economic efficiency, and holistic over view in the sustainability and management of

the economy in general.

Significantly, the recommendations therein shall be applied by all stakeholders and

various tiers of government apparatus to resolve the problems associated with policy

implementation of the deregulation of the downstream subsector, geared to economic

growth, hence, enhancing socio-infrastructures that will trigger national integration.

1.7. SCOPE OF THE STUDY

The scope of this study is on the effect of government deregulation policy of the

downstream petroleum subsector on the Nigerian economy. It would assess the

impact of the policy on national development, with special reference to Lagos State.

It appraises the significance, and performance of the impact of gove rnment policy in

a deregulated petroleum subsector of the commercial city of Lagos from 1999-2007.

However, 1999 -2007 is selected for this research work; the choice of this period is

guided by the following reasons: data availability and Socio -political expediency in

Nigeria economy. In the past, these factors have contributed immensely to the

hitherto scanty empirical studies on Nigeria’s Petroleum Sector. It also examines the

basic changes that took place in the Nigeria Petroleum Sector showing the impa ct of

such changes on the Petroleum downstream sub -sector. It shows how the policy on

deregulation is implemented, crises associated with Price volatility, the impact of

stakeholders in the subsector, impact of Public perspectives concerning the non

implementation of previous Government policies, removal of subsidies on Petroleum

Products, the role of elite class in the reform initiative, influence of Western bloc,

Monopoly of Nigerian National Petroleum Corporation (NNPC), Petroleum Pipelines

Marketing Co mpany (PPMC), Petroleum Equalisation Fund (PEF) and other crises

associated with pricing policy, (Chakrovorty, 2000).

1.7.1. THE STUDY AREA

Nigeria is located about 10° north of the equator and 8° east of the Greenwich

meridian. The country has a landmass of 923,769km2 and is bounded by four

francophone countries, Niger to the north, Benin to the west, Cameroon to the east

and Chad to the nort heast, while the south is bordered by the Atlantic Ocean

(McLennan, James & Stewart, 2005).

The country is characteri zed by a strong climatological gradient from north to south

with definitive dry and wet seasons. The southern part of the country experien ces

heavier rainfall with annual rainfall above 4000mm while in the North rainfall barely

exceeds 600mm. This climate has given rise to two types of vegetation; tropical

forest and savannah. These are further classified to six ecological zones, beginning

from the north with the Sahel, Sudan and guinea savannas, to the tropical rainforest,

freshwater swamp forest and mangrove swamps of the south ( McLennan, James &

Stewart, 2005).

Nigeria is linked by three major river systems, the Komadougou – Yobe river system

in the north with head waters formed by the Hadeja, Jama’are and Misau rivers and

draining into the 11 Lake Chad, the Niger River systems comprising the rivers Niger

and Benue and draining in to the Atlantic Ocean. The coastal drainage system is

formed by smaller rivers oriented east or west of the Niger delta. The country has two

major lakes, the Lake Chad to the northeast and the Kainji Lake, the latter formed by

the damming of the river Niger. (Atiku, 2005).

The country is generally characterized by a gentle and rolling topography. The terrain

is varied from north to south. The south is made up of peneplains formed by the river

systems. The Jos plateau in the central part of the country is m ade of a rugged terrain

with elevations about 5000 feet above sea level. A mountain terrain is found on the

eastern border with Cameroon with elevations ranging from 4000 to 7000 feet above

sea level. Other areas of the country are dotted by escarpments an d volcanic plugs

(ARD 2002). Nigeria is the most populous country in Africa, the 2006 national

census pegged the country’s population at 140,003,542 (National Bureau of

Statistics). More than half of the population live in urban areas, and the population i s

characterized by a strong rural-urban migration. Annual population growth rate is put

at over 3 percent (Boele, 2001).

Nigeria is made up 36 States including Federal Capital Territory, Abuja and over 250

ethnic groups of which the dominant and populous ones are the Hausa Fulani, Yoruba

and Igbo. Lagos State is the commercial city of Nigeria. The economy is dominated

by petroleum, accounting for over 80 percent of government revenue and GDP, 90-95

percent of export earnings and over 90 percent of foreign exchange earnings.

Agriculture once a dominant player has been on a steady decline and its contribution

to GDP is now less than 28 percent (see Map I; World Bank, 2001).

1.7.2. Map 1: Nigeria indicating States

Source: Federal Ministry of Information & Communication, (2008).

Lagos State, Nigeria was created on May 27 by Decree No. 14 of 1967 virtue of State

(Creation and Transitional Provisions), which restructured Nigeria’s Federation into

12 states. Lagos State was an administrative Capital of Nigeria, located in the south –

western part of the country. Lagos State is the smallest of Nigeria’s states but the

second most populous state after Kano State, and ar guably the most economically

important state of the country . Lagos is the nation’s largest urban area. Equally, the

metropolitan areas (Colony Province of Ikeja, Agege, Mushin, Ikorodu, Epe and

Badagry) were administered by the Western Region . The State took off as an

administrative entity on April 11 , 1968 with Lagos Island serving the dual role of

being the State and Federal Capital. However, with the creation of the Federal Capital

Territory of Abuja in 1976, Lagos Island ceased to b e the capital of the State and

moved to Ikeja. Equally, with the formal relocation of the seat of the Federal

Government to Abuja on 12 December 1991, Lagos Island ceased to be Nigeria’s

political capital. See map 2 below, (Wikipedia, The Free Encyclopaedia, 2009).

1.7.3. Map 2 showing Lagos State, Nigeria.

Source: Lagos State Ministry of Culture, (2009).

Lagos State is inhabited by the Aworis and Ogus in Ikeja and Badagry Divisions

respectively, with the Ogus being found mainly in Badagry. While the indigenous

population of Lagos are Aworis, there is, nevertheless , an admixture of other pioneer

immigrant settlers collectively call Lagosians but more appropriately the Ekos. The

indigenes of Ikorodu and Epe Divisions are mainly the Ijebus with pockets of Eko –

Awori settlers along the coastland and riverine areas. (Encyclopaedia, 2005).

While the State is essentially a Yoruba speaking environment, it is nevertheless a

socio-cultural melting pot attracting both Nigerians and foreigners alike, induced a

high rate of rural -urban migration to the State metropolitan reg ion. With a territorial

land area of 356,861 hectares, Lagos State is made up of five administrative

divisions, namely Lagos (Eko), Ikeja, Ikorodu, Epe and Badagry. The dominant

vegetation of the State is the swamp forest consisting of the fresh water and

mangrove swamp forests both of which are influenced by the double rainfall pattern

of the State, which makes the environment a wetland region . Generally, the State has

two climatic seasons: Dry (November-March) and Wet (April-October). The drainage

system of the State is characterized by a maze of lagoons and waterways which

constitutes about 22 percent of 787 S q.kms (75,755 hectares) of the State total

landmass. The major water bodies are the Lagos and Lekki Lagoons, Yewa and Ogun

Rivers. Others are Ologe Lagoon, Kuramo Waters, Badagry, Five Cowries and Omu.

Lagos with a population of about 11 million people is divided into 20 Local

Government Areas in line with the nation’s three -tier federal structure. However, in

recognition of the peculiarity of Lagos m ega city challenges, and in order to bring

governance, development and participatory democracy nearer to the people, Local

governments were restructured in June 2002 with the creation of additional 37

Development Area Councils bringing the number of the Lo cal Governments in the

state to 57. (Encyclopaedia, 2005).

Refineries in Nigeria : There are basically four s tate own refineries in Nigeria, with

an initial combined refining capacity of 445 ,000 barrels per day (bpd), which

translates to about 18 million litres per day for PMS, if all the refineries assuming

they are all working optimally. But the current situation is abysmal, as only Port

Harcourt 2 and Warri refineries that are partially refining crude oil . These four

refineries are:

• The first Port Harcourt Refinery was commissioned in 1965 with an installed

capacity of 35,000 bpd and later expanded to 60,000 bpd;

• The Warri Refinery was commissioned in 1978 with an installed refining

capacity of 100,000 bpd, and upgraded to 125,000 bpd in 1986;

• The Kaduna Refinery was commissioned in 1980 with an installed refining

capacity of 100,000 bpd, and upgraded to 110,000 bpd in 1986;

• The second Port Harcourt Refinery was commissioned in1989 with 150,000

bpd processing capacity, and designed to fulfil the dual role of supplying the

domestic market and exporting its surplus. (RSCPPSD, 2000).

The combined capacities of thes e refineries exceed the domestic consumption of

refined products in the 1970s and 1980s respectively, most noticeable of these

products is Premium Motor Spirit (PMS or Gasoline), whose current demand is

estimated at 33 million litres daily. The refineries are however, operating far below

their installed capacities, as they were more or less abandoned during the military era,

skipping the routine and mandatory turnaround maintenance that made products

importation inevitable as a result of persistent product shortages that gave strength to

the argument for deregulation of the downstream subsector of the oil and Gas in

Nigeria.

From the forgoing, it is believed that the implementation of deregulation policy of the

petroleum downstream subsector will attract i nvestor into the refining and logistic

facilities business in Nigeria. See pic 2, (NNPC 2000).

1.7.4. Pic. 1: Pictorial representation of existing refineries in Nigeria.

Source: Kaduna Petrochemical, NNPC, (2009).

1.7.5. Pic. 2.

Source: Warri offshore Refinery, NNPC, (2009).

Pipeline Network: there is at present about 5001km of pipeline network nationwide.

The PPMC uses the network of multi products pipelines to move products from the

refineries/import receiving jetties to the 21 storage depots all over the country. All the

systems are multipurpose pipelines except for Mosimi -satelite depot lines. The

distribution network is made up of a number of systems as follows:

• System 2A – Warri-Benin-Ore-Mosimi
• System 2AX- Auchi-Benin
• System 2B- (a) Atlas-Cove-Mosimi-Ibadan-lorin

(b) Mosimi-Satelite [Ejigbo in Lagos]

(c) Mosimi-Ikeja

• System 2C- Escravous-Warri-Kaduna [Crude lines]
• System 2d- (a) Kaduna-Zaria-Kano

(b) Kaduna-Zaria-Gusau

(c) Kaduna-Jos-Gombe-Maiduguri

• System 2E- PH-Aba-Enugu-Makurdi
• System 2EX- PH-Aba-Enugu-Makurdi-Yola
• System 2CE- [a] Enugu-Auchi [interconnection]

(b) Auchi-Suleja-Kaduna

(c) Suleja-Minna

• System 2DX- Jos-Gombe. (RSCPPSD, 2000).

The first phase of the pipeline system was built 40years ago. However, the fact is

that pipelines are generally known to have a terminal life span of 50years if well

maintained. T he pipelines and associated equipments such as pumps, valves,

loading arms and meters, generators e.t.c. have aged and at var ious stages of

deterioration as a result of the lack of proper maintenance schedule as well as the

incessant and deliberate acts of vandalization, (RSCRPPS&D, 2000).

1.7.6. Pic. 3: Sample of a Pipeline Network in Nigeria.

Source: PPMC, 2007.

Refined petroleum products are distributed nationwide through pipelines to

designated depots of the corporation. Road tankers, bulk rail wagons and coastal

barges to the marke ters’ outlets and consumers alike handle transportation from the

refineries and depots. However, licenses must be obtained from Directorate

Petroleum Resources (DPR) for transportation of the products in order to avoid

contamination, adulteration and illegal distribution of petroleum products, which also

provide for safety from fire, quality control, loading, storage, handling, offloading

and other procedures for such an operation.

The activities of these ship owners are monitored by both Directorate of Petroleum

Resources (DPR) and Petroleum Products Pricing Regulatory Agency (PPPRA) to

prevent illegal bunkering of petroleum products. Recent reasons adjudicated are, t hat

deregulation economy policies will essentially triggered competition in Logistic

facilities operations among stakeholders allowing consumers to bid for goods and

services, thereby matching their desires with society’s opportunity cost, which will

instructively allow the pricing system to serve as barometer for competition in the

downstream petroleum sector , will attract investment, which would in turn down

word prices of domestic petroleum products, (PPPRA, 2009).

1.7.7. Retail Outlets:

The downstream sector of the Petroleum industry is characterized by a wide range of

business opportunities of which retail operations stands as an entity. The early

investment opportunities tapped by those major marketers today account for their

consolidation and dominat ion of the oil sector both in retail outlets spread and

percentage market share in business nationwide.

A functional retail outlet must be strategically located at a commercial point, close to

offices, homes or highways; it must be clean, bright, function al and attractive to

customers; the physical Structure of a retail outlet should be simple but well designed

with adequate facilities; and work force is the key to any successful enterprise.

Personnel should be skilled, pleasant, clean, smart, and friendly

The retail outlet is commonly known as a petrol station or filling station and it is a

multi-purpose-marketing centre where petroleum product and auto -related services

are sold and delivered to the public. Investment in the retail outlet is the most

conspicuous and common business area in the downstream petroleum industry. See

map 3.

1.7.8. Map 3: Retail Outlets in Lagos State

Source: Access Bank Corporate H/Q, Lagos and Total Oil Nigeria, 2010.

Note:

i. According to the 2006/2007 census carried out by PPPRA on retail outlets in

Lagos State about 4000-5000 filling stations were captured, (PPPRA, 2007).

ii. The blue dotted spot indicates retail outlets and there are locations in Lagos

State most of which are Total filling stations, while the blue spots rep resent

Access Bank.

Distribution of petroleum products is largely dispensed through retail outlets (filling

stations). This covers the transportation of refined products from the refineries or the

import terminal to the retail/wholesale outlet. Prior to i ndependence, distribution was

carried out by Ocean O il Company whose major marketing strategy was to open

retail outlets in major cities in the country . However, in 1973, Nigeria commissioned

the British Petroleum (BP) and thereby opened its fi rst refinery in Port-Harcourt. In

1971, Nigeria joined OPEC and decided to implement the OPEC law that all oil

producing country should acquire 60 percent equity share and this was when Nig eria

National Oil Company (NNOC) was carved out to take care of both t he upstream and

downstream sectors. When Nigeria started implementing this procedu re, it (Nigeria)

took 100 percent control and ownership of downstream and upstream sector.

1.8.9. Map 4, showing Depots and Jetties in Nigeria

Source: Directorate of Petroleum Resources, (2010).

Note:

i. Denotes Refinery depots where tankage is not strictly

dedicated to finished products;

ii. At Ikeja, tank farms belong to the Major Marketers.

From the map 4 above, the b lack dotted spot indicates the location of depots across

the country. Three main groups o wn the major storage and dispensing facilities

nationwide. The combined capacity of these storage facilities (Depots) represents

71percent, 99 percent and 108 percent for which products respectively nationwide

daily sufficiency at a consumption level of 18 and 10 million litres per day for the

three white products.

NNPC/PPMC Depots are 23 , located at various p arts of the country. See table 1

below. The Apapa Depot in Lagos state is a private ly owned by Major Markers,

while Ibafon Depot is owned by Independent Marketers bring ing the total of depots

in the country to about 25.

Table 1: Holding Capacity of Petroleum Depots (All Figures in M3)

S/NO DEPOTS PMS DPK AGO ATK TOTAL

1 Benin 60,700 28,700 32,000

12,400

2 Ore 25,700 6,000 10,000 –

57,600

42,300

3 Mosinmi 163,400 76,000 127,200

424,200

4 Atlas cove 48,000 34,000 32,300 1,900 114,300

5 Lagos Satalite 10,000 1,900 12,300

26,300

6 Ibadan 102,800 28,700 40,500

172,000

7 Ilorin 32,500 6,800 20,000

59,500

8 Suleja 45,000 30,000 30,000

105,000

9 Minna 24,000 15,000 24,000

53,500

10 Kano 60,000 22,500 63,000

145,000

11 Gusau 24,400 9,100 20,000

53,500

12 Jos 72,900 8,700 43,200

124,800

13 Gombe 10,000 2,300 7,200

19,500

14 Maiduguri 20,200 15,900 18,500

54,600

15 Yola 39,000 21,900 24,000

84,900

16 Makurdi 59,300 28,100 34,300

121,700

17 Enugu 99,900 49,000 64,500

213,400

18 Aba 56,000 26,000 29,500

111,700

19 Calabar 40,200 20,100 40,000 14,500 103,200

20 Ikeja

14,500

21 Warri 99,200 87,700 97,400

22 Kaduna 135,000 65,000 97,000

23 Port Harcourt 145,000 93,000 141,000

SUB-TOTAL (NNPC) 1,226,890 676,400 1,007,900 74,000 2,164,800

APAPA Major Marketers

Independent Marketers (Ibafon)

40,000

17,400

17,300

15,200

23,000

54,000

11,500 91,800

86,600

NATIONIDE TOTAL 1,284,290 7,089,000 10,884,900 85,500 2,343,200

Source: Pipelines & Products Marketing, (2009).

Jetties in Nigeria: There are very few state ’s owned jetties in the country, see table

1. But for the purpose of the study areas, Atlas Cove will stand for those of Calabar,

Warri, and Okrika jetties.

1. Atlas Cove Jetty Status

Atlas Cove Terminal, which is the main sea receiving facility in Nigeria, is in a total

state of disrepair. Almost all the installed facilities have given way, up to and

including the storage capacity for the three major products, the depot is handling;

PMS, DPK and AGO.

This depot is very strategic, and also serves as bulk breaking facility for cargoes

intended for discharge at Apapa. About 30 percent of the nation’s requirement is

therefore programmed to pass through this jetty and could be much more if the

downstream facilities installed in its system are functioning optimally.

The state of the facilities leaves much to be desired fo r a facility of that importance,

and giving its strategic importance in the main hub in the supply and distribution

chain of petroleum products in the country. Owing to its current state, ships are

therefore delayed causing inadequate supplies and financial loss through demurrage.

In the navigational facilities/operating cost, o nly Atlas Cove has facility for handling

medium range vessels. All other jetties are limited to operating within draught r ange

between 6.5 and 9.2 meters, t his result in a higher freight cost. Beside, effective

supplies are hampered by:

i. Inadequate tugboats and or pilot cutter required for berthing an d unberthing of

vessels.

ii. Shallow and winding approach channels limiting draught and overall vessels

length allowed in most berths. See table 2 below on draught limitation.

1.7.10. Pic. 4: Sample of Jetties in Nigeria

Source: Apapa Jetty, NNPC, (2009).

Pic. 5: Sample of Jetties in Nigeria

Source: Bonny Jetty, NNPC, (2009).

Table 2: Draught limitation of Product Receiving Jetties

Jetty Draught

Atlas Cove 10.5

Apapa 7.4

Okrika

9.2 (outer jetty)

6.7 (inner jetty)

Warri 6.4

Calabar 7.2

Source: Pipelines Products & Marketing Company, (2008)

The Bureauc ratic Involvement of m any government agents are involved in the

granting of clearance and free Passage to vessels discharging products into the water –

fed facilities. Delays occasioned by bureaucratic process have cost implications and

militate against effective supply, (RSCRPPSD, 2004).

1.8. LIMITATIONS OF THE STUDY

Sequel to the foregoing, it is important to note here that despite restricting the scope

of study to the effect of government deregulation policy within the Lagos State,

research of this magnitude must have some constraints; the principal constraint is

personal sentimen t or biasement of the respondents as well as their subjectivity in

filling the questionnaires. So me felt reluctant to cooperate b ut the data from

secondary sources helped to bridge up the gaps.

Therefore, the choice of choosing this topic is conditioned i n this new development

regarding availability and quality of data under the new democratic dispensation.

This gives one enough optimism and encouragement to undertake this study at this

moment of Nigeria’s chequered Socio-political economy history.

1.9. ORGANIZATIONAL STRUCTURE OF THE THESIS

The thesis is divided into six chapters. The f irst chapter is the introduction which

focuses on the definition of concepts, development to the background of oil in

Nigeria, statement of the problems, aim s and objectives of the study, research

methodology, research questions, research proposition, significance of the study ,

scope of the study whic h include the study area , limit ations of the study and

organizational structure of the project.

The second chapter is devoted to literature review and theoretical framework of some

of the major works that were scholarly carried out on policy making and

deregulation, and their relevance to this present study. The third chapter concentrated

on research methodology, sources of data, method of questionnaire administration,

population sample/ target population, sampling techniques, and methodological

challenges. Others are; research design, and research questionnaires.

The fourth chapter concentrate on deregulation policies in the downstream petroleum

subsector of the oil industry, agro -economy to petroleum economy, pre 1999

regulatory policy measures in the p etroleum sector, the military and the expansion of

petroleum sector, structural adjustment policy, and the collapse of oil economy.

Others include; politics of oil subsidy and OPEC bench mark on global crude oil

pricing. The fifth chapter deals with data analysis and discussion and finally chapter

six is the findings, conclusion and recommendations.

1.10. DEFINITION OF TERMS

Crude Oil: formed from Greek words: Petra -Rock and Oleum -Oil. A mixture of

Hydrocarbons (carbon and hydrog en), containing other elements called impurities

such as; sulphur, nitrogen and oxygen compounds. Others are; gaseous -C1-C4,

Liquid C5-C15, and solid >C16–>.

Paraffinic Crude: contain saturated open chain hydrocarbon.

Naphthenic Crude: contain saturated cyclic hydrocarbon.

Aromatics Crude: is unsaturated cyclic hydrocarbon.

Light Crude oil }

Medium Crude oil} are determined by chain length, characterised by boiling point/other

Heavy crude oil } physical properties.

Oil Refinery: is an industrial processing plant where crude oil is proceeds and

refined into more petroleum products, such as gasoline, diesel fuel, heating oil,

kerosene and liquidefied petroleum gas, and asphalt base. Refineries can range in size

from small units capable of processing 10,000B/D of crude to giant complexes

running on 700,000B/D of crude oil.

Crude Fractionation (distillation): is the separation of crude oil in the atmospheric

and vacuum distillation towers into groups of hydrocarbon compounds of differing

boiling point ranges called ‘fraction’ or ‘cuts’. It is a physical process.

Economic policy: is the action statement of go vernment pertaining to particular

sectors of the economy, describing the intended objectives and how to achieve them,

geared towards the improvement socio -economic welfare of the people, either in the

short-run or in the long-run.

Low Capacity Utilisation : is when there is deficiency in the actual output of

capacity of a system either machinery or human.

IPP: Import Price Parity: import parity pricing principle is where the domestic prices

of petroleum products are indexed to the dynamics of internationa l market

fundamentals. This is applicable where a country is net importer of products.

EPP: Export Parity Pricing Principles is where the domestic price is a function of

world market price. This is applicable where a country is net exporter of products.

PSF: Petroleum Support Fund; a scheme put in place by the government to cushion

petroleum products price volatility in the market due to underfunding of the

subsector, that is, to stabilise domestic price of products and inadequate product

supply and distribution.

IPMAN: Independent Petroleum Marketers Association of Nigeria. These are

custodians of the retail outlet in the country.

NARTO: National Association of Road Transport Owners.

MOMAN: Major Oil Marketers Association of Nigerian. These are Operators of

upstream sector of the oil and gas industry.

DAPPMA: Depot and Petroleum Products Marketers Association of Nigeria, are

operators of petroleum logistic facility (storage tanks or farm tanks), which ease

distributor of petroleum products to outlets across the country.

OMCs: Oil marketing Companies.

OMO: Open market operations

Cost Plus Pricing: is applicable where the products selling price is determined on the

cost of crude oil plus refiner’s margin to cover the operating cost as well as a

reasonable profit margin to the operator.

PENGASSAN: Petroleum and Natural Gas Senior Staff Association of Nigeria.

NUPENG: National Union of Petroleum and Natural Gas.

Over-Recovery: is the reverse of PSF, a period when the actual landing cost of a

products dips below the government regulated Ex -depot price, markets make refunds

to the Petroleum Support Funds (PSF).

Deregulation: is non -interference of government in the control of petroleum

products activities, while allowing private participant into the petroleum business.

Regulation: in government involvement in the control of the activities of petroleum

products pricing, price determination/control

Subsidy: in economics, is monetary grant giving by government to lower the price

faced by produ cers or consumers of a good, generally because it is considered to be

in public the interest. Subsidies protect the consumer from paying the full price of the

good consumed, however they also prevent the consumer from receiving the full

value of the thing not consumed. A subsidised society therefore is a consuming

nation because it unfairly encourages consumption more than conservation.

WTI: West Texas Intermediate Crude Oil (US Benchmark).

Brent Crude: European Benchmark Crude Oil.

Bonny Light: Nigeria Benchmark Crude Oil.

PMS: Premium Motor Spirit (Petrol).

AGO: Automotive Gas Oil (Diesel).

HHK: Household Kerosene, or DPK: Domestic Petroleum Kerosene

Benchmarking: A comparison of environmental and social management processes,

performance and reporting. Benchmarking can be used to provide detailed

comparisons of operating divisions within a company or companies within a

particular sector. Benchmarking can also enable comparison of global trends between

highly diverse organisations and sectors.

Code of Conducts : A management tool for establishing and articulating the

corporate values, responsibilities, obligations, and ethic ambitions of an organization

and the way it functions. It provides guidance to employees on how to handle

situations which pose a dilemma between alternative right courses of action, or when

faced with pressure to consider right and wrong.

Policy: a plan of action, statement of ideas, proposal or adopted by a government,

political party, corporate organisations, etc, to achieve a set objectives.

Corporate Government: The system by which business corporations are directed

and controlled. The corporate government structure specifies the distribu tion of right

and responsibilities among different participants in the corporation, such as the board,

managers, shareholders and other stakeholders, and spells out the rules and

procedures for making decisions on corporate affairs.

Corporate Values: The purpose of the organisation’s existence and against which it

wants its activities to be judged by employees, customers, suppliers, investors,

communities and governments.

Crisis Management: A management process devised to handle recognized potential

threats to an organization.

EU Multi -Stakeholder Forum on deregulation policy: A series of Round Table

meeting on Corporate Social Responsibility reporting to the EU Commission in July

2004.

A Level Play Field: A business partnership that aims at sustainable development for

excluded and disadvantaged producers. It seeks to do this by providing better

equitable conditions of business, by opportunity to competitors within same business

emperies.

Focus Group: An open-ended, discursive research approach used to gain a deeper

understanding of respondents’ attitudes and opinions. Typically involves between 6 –

10 people, and lasts for 1 -2 hours. A key feature of the group is that participants are

able interact with, and react to, each other.

RSCRPPSD: Report of the Special Committee on the Review of Petroleum Products

Supply and Distribution.

IEO: International Energy Outlook

ISO 9001: The International Standards Organisation’s (ISO’s) main standard for

quality systems covering design, development, produ ction, installation and servicing

organisations.

Return on Investment: this is an enabling business environment that gives an

investor the confidence of having returns on its investment.

Knowledge Management: Knowledge management relates directly to the

effectiveness with which the managed knowledge enables the members of the

organization to deal with today’s situations and effectively envision and create their

future. Without on -demand access to managed kno wledge, every situation is

addressed based on what the individual or group brings to the situation is addressed

with the sum total of everything anyone in the organization has ever learned about a

situation of a similar nature.

NUDESA: United Nations Department of Economic and Social Affairs.

DPR License to Operate: in the oil and gas industry, the Directorate of Petroleum

Resources issue a company licence to operate’ is conferred by the society in which it

operates and within which it should minimize any adverse environmental or social

impacts.

Price Volatility: instability in petroleum products pricing as a result of short fall in

supply.

Marketplace: Corporate responsibility in the marketplace is the application of

responsible behaviour in managing business and consumer relationships from product

development to the buying, marketing, selling and advertising of products and

services. It includes consideration of the supply chain and clients and customers.

Scenario Planning: Forecasting based on diffe rent assumptions about the future of

oil and gas industry within the internal and external environments.

Small and medium -sized enterprises (SMEs): are defined by the European

commission as independent enterprises that have fewer than 250 employees, and an

annual turnover not exceeding €40/£25 million or a balance -sheet total not

exceeding €27/£17 million (extract from the 96/280/EC, European Commission

Recommendation of 3 April 1996).

EPEA: Environmental Protection Agency.

Stakeholder: Stakeholders are those who either affect, or are affected by, the

activities of a company. They include customers and consumers, employees, trade

unions, business partners, lenders and insurers, investors, local and international

NGOs, the media, and suppliers, etc.

Stakeholder Engagement: Communication and obtaining feedback from customers

and consumers, employees, trade unions, business partners, lenders and insurers,

investors and analysts, sector/industry experts government, regulators, host

communities, local and international NGOs, the media, and suppliers.

Sustainability: Sustainability is a business approach that creates long -term

shareholder value by embracing opportunities and managing risk deriving from

economic, environmental and social developments. Corporate sustainability leaders

harness the market’s potential for sustainability products services while at the same

time successfully reducing and avoiding sustainability costs and risk.

Sustainable Development: Development which meets t he needs of the present

without compromising the ability of future generations to meet their own needs.

Transparency: Being honest and open in all communications about an

organisations’ activities, Also Transparency International – an NGO whose brief is

to help companies ensure they operate in an open manner – especially in developing

countries where bribery and corruption may be rife.

Triple Bottom Line: Measuring public/private establishment performance based on

its combined contribution to economic p roperty, environmental quality and social

capital.

UN Global Compact: A call to businesses of all sizes in all countries around the

world to help build the social -economic and political frameworks that will support

the continuation of open and free markets operations, whilst giving people the right to

share in the benefits that can come from a global economy originally agreed in 1999.

Zero Emission of Waste: Reducing the amount of landfill disposal to less than 1 per

cent after all by -products of business activities and any other products generated

(total quantity of wast e discharged) have been dealt with by a variety of other

methods.

FCA-Free Carrier: this means that the seller fulfils his obligation to deliver when he

has handed over the goods, cleared for export into the charge of carrier named by the

buyer at the named place or point. The term is frequently used when goods are to be

transported by container, whether by ship, road or a combination of them.

GHG: Green House Gas.

CHAPTER TWO

LITERATURE REVIEW AND THEORETICAL FRAMEWORK

2.1. CONCEPT OF PUBLIC POLICY

According to Robinson and Tinker (1994), the concept of public policy is a guide to

action to change what would otherwise occur, a decision about amounts and

allocations of resources: the overall amount is a statement of commitment to certain

areas of concern; the distribution of the amount shows the priorities of decision

makers. Policy sets priorities and guides resource allocation. Public policy is a policy

at any level of government. Some levels may have formal or legal precedence over

others. Policy may be set by heads of government, legislatures, and regulatory

agencies empowered by other constituted authorities. Supranational in stitutions’

policies, as those of the World Trade Organisation or United Nations Conventions,

may overrule government policies. In their expression, gave different forms of

policies, thus:

i. Organization policy: the policies of any organizations whether publ ic or

private, are usually subordinate to public policy, and are always shaped by

taking into account the constraints and options available under public

policy, for example, tax policy, environmental policy, civil rights policy,

labor policy.

ii. Policy goals: the goal of policymaking is to shape the course and pace of

change in a preferred direction by influencing actions of public and private

organizations, affecting populations, environments, and behavior. Changes

in organization’s decisions about their use of resources alters activities of

managers, staff, clients and customers, affecting access to services,

products, and information. Socio-economic policies improve the conditions

under which people live; secure, safe, adequate, and sustainable livelihoods,

lifestyles, and environments, including housing, education, nutrition,

information exchange, child care, transportation, and necessary community

and personal social and health services. Policy adequa cy may be measured

by its impact on population GDP (Gross Domestic Product) and NI

(National Income).

iii. Policy making processes: political, social, and economic processes ultimately

shape the content of public policies. Understanding the nature of these

activities in any jurisdiction, which can be studied in their formal and

informal aspects, can support efforts to strengthen healthy public policies.

Policy making is driven by organizations and groups that have an interest in

the outcomes.

iv. Policy stakeholders /players/actors: policies develop through the actions of

identifiable players. Players are groups whose status, size (or membership),

revenues or activities are affected by current and prospective policies,

including political parties, the media, bureaucra cies, voluntary and

commercial organizations, public interest and professional groups. They

believe they can make a difference in policy choices that affect them.

v. Policy environment: stakeholders must take account of the policy context,

including past policymaking, socioeconomic conditions, widely expressed

values, and population demographics and epidemiology. This climate

affects the feasibility of influencing any specific policy, fo r example,

policies of the 1960s, are inconceivable today. Periodic scanning of the

environment provides clues to what is feasible and timely for healthy public

policy initiatives.

vi. Policy instruments: there are broadly accepted policy instruments (types o f

measures) used in policy formulation, for example, economic, regulatory,

and educational measures. When the policy climate precludes more

effective but politically costly tools (such as a high tax on tobacco)

governments can use less effective but easier to adopt measures, for

example, public education or modeling by demonstrating strong tobacco

control within its own sites.

vii. Political strategy: this is a plan to improve chances of success for policy

adoption and implementation. It requires identifying and targeting

policymakers, organizations, the media, and populations; using persuasive

rationales specific to each audience; creating public debate to help

“unfreeze” previously held opinions; using old and new methods of

communication, persuasion, and mobilization, revising tactics as needed.

viii. Strategic information: strategic (or political) information is intended to

persuade more than to educate, to advocate and mobilize support, and to

demonstrate the political, social and economic feasibility of a propos ed

policy, for example, supportive public and media opinion, organizational

endorsements, model policy language, key points and examples. It is shaped

to the interests of specific stakeholder groups, (Osaze, 1994).

As we move toward the 21st century, human institutions, from the local level to the

global level are facing a range of ecological, economic, and social challenges. It is

becoming clear that much of our industry and agriculture and our use of renewable

and non-renewable natural resources are unsustainable. There are

challengesassociated with policies implementation; two examples suggest the global

scope of the problem:

• Humans may now directly and indirectly appropriate about 40 percent of the

total photosynthetic product of the planet (Vito`2qusek et al. 1986; for marine

resources, (Pauly & Christensen, 1995). This will likely stringently limit future

growth in human consumption.

• If the current global population consumed resources at the same rate as the

average Canadian, two additional pla nets would be required (Rees &

Wackernagel 1994).

Such calculations suggest that global carrying capacity will soon be exceeded, if it

hasn’t been already, and that global adoption of industrialized countries’ rates of

consumption and production would simply be untenable.

Economically, change is now extremely rapid, including the disappearance of

centrally planned economies; the powerful trend toward the use of market forces and

market-based policies throughout the world; gl obal economic integration, driven by

trade liberalization; and the emergence of a global capital market, characterized by

financial flows that dwarf flows of traded goods and services. These developments

have in turn had a number of effects:

• Increased econ omic interdependence among nation states and reductions in

national economic sovereignty;

• The emergence of global corporations and financial institutions whose

activities cannot now be effectively regulated by governments;

• Highly mobile international tra de and investment flows, which are felt to limit

nations’ freedom to raise taxes for social programs;

• Increasing pressures to maintain international competitiveness;
• Pressures to reduce the size of the public sector, to reduce (or at least not

increase) taxation (especially direct taxes), and to reduce deficit financing and

public debt;

• Growing structural unemployment in many industrialized countries;
• A rising and unacceptable number of people living in absolute poverty; and
• Large income disparities between richer and poorer countries and between rich

and poor within both industrialized and developing countries, (Charles, 1983).

The causes of these problems are the subject of much debate, as are the most

promising remedies; in some cases, the debate is about whether these phenomena are

problems at all. But current economic conditions are clearly unsustainable for a

significant proportion of the world’s population, in developed as well as developing

countries.

Governance and other social structures are also under stress. In many market-oriented

industrial societies, the system of governance is viewed with growing distrust, a sense

of alienation, and even distaste. This is coupled with the failure of governments to

address basic social issues, such as crime , drugs, poverty, unemployment, and

homelessness, in ways that command public support. Such alienation may grow as

public demands to cut taxes and reduce debt conflict with the desire to maintain

social and environmental programs. The overall effect is a d ecline in civil society

and, in many inner -city neighbourhoods, a descent toward lawlessness and

ungovernability, ((Homer-Dixon, 1991).

In the former centrally planned economies, fragile structures of governance are often

barely surviving the stresses and social problems accompanying the transformation to

a market economy. In the developing world, poverty, rapid population growth and

displacement, the replacement of a subsistence economy, other forms of economic

development, and massive environmental impact s are being managed with only

mixed success, perhaps best in parts of Asia and worst in parts of Africa. The major

challenge in many former command economies and many developing countries faced

with a rapid decline or even collapse of traditional value sys tems is to enlarge and

strengthen a stable civil society, which at present is only embryonic. Without a stable

society, the trust and public self -confidence needed for participatory governance are

limited.

Rapid population growth will continue to have majo r impacts on society, the market

system, and the biosphere, although completed family size is now falling in some

developing countries. Rapid population growth may well end by the close of the 21st

century. However, the level at which global population sta bilizes (and its

geographical distribution) will have a massive influence on the feasibility of the

dematerialization and re-socialization strategies outlined in this chapter.

The extent of these problems illustrates a form of social unsustainability in many

parts of the world, we may have exceeded the “carrying capacity” of our current

cultures and governance systems, (UNDP 1994; UNICEF 1994; World Bank 1994).

2.2. CONCEPT OF DEREGULATION POLICY

Deregulation of the petroleum downstream subsector has generated a lot of interest

and there have been numerous studies on it ranging from political economy of oil,

harnessing gas structure in Nigeria, oil as GDP determinant for economic growth,

impacts of land degradation, ecology, the Petroleum I ndustry Bill (PIB) and its

impact on the economy. Of all these studies, research on the effect of deregulation of

the petroleum downstream subsector remain the most contentious, this is because

most of the studies are based on assumptions and speculations. Effect of deregulation

has generated interests and debate in the academia, governmental and

intergovernmental publications, independent researchers and nongovernmental

organizations, each of them taking sides and pushing their agenda. Although there

exist little empirical studies on effects of deregulation of the petroleum downstream

subsector in core scientific journals, there exist voluminous articles and publications

on deregulation from different independent a nd reputable organizations and

researchers.

The literature sources used in this research work were carefully selected, while some

are from scientific journals and pub lications, internet, others were derived from

organizations of repute. Some of these orga nizations include OPEC, International

Energy Journals, Nigerian National Petroleum Corporation (NNPC), Directorate of

Petroleum Resources (DPR), Petroleum Pipeline & Marketing Company (PPMC),

Petroleum Products Pricing Regulatory Agency (PPPRA), Ministry o f Petroleum

Resources, Central Bank of Nigeria (CBN). Other sources include; Personal

interviews, Print & Electronic Media and internet application.

Hence, we wish to identify some key dimensions of deregulation; these a re definition

and nomenclature in politics and policy issues, deregulation advocacy and

economics, and finally the downstream aspects of the petroleum industry, ranging

from supply and distribution, price volatility, effect of subsidy on the economy,

market fundamentals, investment opportuni ties in the sector, socio -economic

development as a result of deregulation and consumer’s concerns. We would discuss

these subsequently in the literature.

There is no doubt on what deregulation is and most authors tend to have close and

similar definition s. Deregulation is the opening up of State -owned-enterprises for

private participation, that is, government creating an enabling environment for

individual or corporate entity to invest with the intention of making margins, (Mike

2007 & Gidado 1998).

While scholars agree on various class definitio n of deregulation, there is a clear

distinction between the pattern of deregulation available and in some quarters the

nomenclature of applied deregulation has been a source of dispute. Deregulation can

either be partial (that is, subsidizing petroleum prices, without a recourse to market

fundamental principles) or full deregulation (that is, allowing economic index to

determine the forces of supply and demand).

A pertinent question bothering lots of people t oday is; why deregulate the

downstream petroleum subsector? Why have deregulation policy become so popular

and a major subject of discussion. According to Mike (2007) & Gidado (1998) ,

deregulation has received attention and has been a sustainable means for socio-

economic enhancement with the potentials of developing the oil and gas sectors,

reducing unemployment through job creation, and alleviating poverty and rural

development by linking oil and non -oil sector for industrial development. If these are

the merits of deregulation then, why is there much fuss about the policy, this is

because government lacks the political will to implement the policy.

Although the above assertion is true, there is a lot of politics to deregulation, the

interests and concern s of deregulation differ in developed and developing countries.

Apart from its link with sustainable economic development ‘oil has a political and an

economic value, both for industrialized and for developing countries’ (Randazzo &

Sassi 2007). Concerns su ch as recent hikes in oil prices have raised serious concerns

in low income countries, both due to the financial burden of higher energy import

bills and potential constraints on imports of necessities like food and raw materials.

Higher oil prices also ha ve sparked energy security concerns worldwide, increasing

the demand for petroleum products (Shapouri & Rosen 2008).

According to Kupolokun (2007) the global South has got ten better climatic and land

resources that make crude oil production more economica lly viable than the North.

He noted that a pact between the North and South had great opportunities for

fostering international peace, security and economic development, which would be

focused on an industrial block centred on deregulation.

The use of the North-South, and tropical concepts by Kupolokun (2007) bring to fore

other political dimension to the deregulation discourse. Currently world energy

supplies (crude oil) come from the Middle East whi ch the global north seems unease

with. So is deregulatio n a global ploy or strategy to get alternate energy supplies and

reduce dependency on the Middle East or is it just to score a political point?

In response to the deregulation or regulation debate, Mayorga-Alba (1995) stated that

critics of oil depletion had often been warned about a coming oil crunch due to the

competition for inputs between petroleum products and food productions, however

decades have passed and the doomsayers have been proven wrong, as food

production increased in the USA and crude pric es have been below actual cost of

production. It must be mentioned that Daschle’s argument is incomplete or doesn’t

make economic sense. If availability of petroleum products or food production has

increased d espite domestic prices being below production cost, it implies that

government is subsidizing petroleum products or food production to avert social

crises as experienced in the past.

While scholars agree on the definition of deregulation, it must be stated that there is a

clear distinction between the types of public policies available and in some quarters

the nomenclature of deregulation has been a source of dispute. Crude oil can either be

traditional (that is, existing naturally without deliberate cultivation or could be

deliberately produced for fuel production). According to African Biodiversity

Network (ABN 2007), crude oil include the traditional use of biological materials for

fuel, such as wood, dung, biogases etc, agro fuels however refer to the process of

specifically growing crops on a large scale to produce fuels.

However, it is pertinent to stress that purposefully yielded crude oil and tradi tional

deregulation policy are different in both scale and impacts. Traditional crude oil

products are man’s earliest form of energy however modern petroleum production is

raising issues that were previously unconnected t o traditional bio energy, (Osu –

Emmanuel, 2009).

A pertinent question bothering lots of people today is; why deregulation? Why have

deregulation become so popular and a major subject of discussion. According to

Hazel & Pachau ri (2006) petroleum products have received attention as been a

sustainable energ y source with the potentials of coping with rising energy crisis,

triggering industrial development, boost economic enhancement, create health

competitions, offsetting environmental problems posed by global warming and Green

House Gas ( GHG), and alleviatin g poverty and rural development by linking energy

and power supply. If these are the merits of deregulation then, why there is much fuss

about deregulation, this is because there are other dimensions to deregulation in

Nigeria.

Although the above assertion is true, there is a lot of politics to petroleum products,

the interests and concerns of deregulation are different between developed and

developing countries. Apart from its link with sustainable development ‘petroleum

has a p olitical and an economic value, both for industrialized and for developing

countries’ (Randazzo & Sassi 2007). Concerns such as recent hikes in oil prices have

raised serious concerns in low income countries, both because of the financial burden

of higher energy import bills and potential constraints on imports of necessities like

food and raw materials. Higher oil prices also have sparked energy security concerns

worldwide, increasing the demand for petroleum products (Shapouri & Rosen 2008).

According to Mathews (2007) the global South has got ten better climatic and land

resources that make petroleum products more economically viable than the North. He

noted that a pact between the North and South had great opportunities for fostering

international peace, security and economic development, which would be focused on

an industrial block centred on crude oil.

Eijck & Romijn (2008) in their paper stated that the fast growing concern of crude oil

exploration in the tropics and the expansive land requirement fo r crude oil production

made the tropics the ideal place for crude oil production. This they argued will yield

economic and environmental benefits for the participating countries not only in

tackling environmental degradation and wealth creation for economi c development.

Using Venezuela as a case study, they did advocate the use of alternative (bio -fuel

and ethanol) petroleum products.

Muller et-al. (2007) concluded that though deregulation is criticized globally for its

unequal competing environment, it r emained unclear on how the pattern of

competition and conflict will evolve. They however noted that crude oil prices were

likely to rise but growing demands for petroleum production would give consumers

greater flexibility to switch between petroleum produ cts on one side and its

alternative energy commodities on the other hand. They further stated that

deregulation policy could impact food security in both positive and negative ways,

higher pump prices in the short-run could while at the same time serving a s a catalyst

for the development of the oil and gas sector and the economy at large.

Muller et al. raised a point which can be regarded as too casual an analysis: they said

deregulation would give consumers the flexibility to make choice amongst o perators

in the sector. This assertion is wrong for a number of reasons, first switching between

operators/marketers is dependent on products availability factorised on marginal cost

of refining and marginal return on investment. Most consumers in developing

countries experience very low per capital income and would therefore have to make

an opportunity cost to either patronise the lowest pump price of petroleum product or

to buy petroleum product from where they can enjoy better service delivery (accuracy

in the metre dispensing) at filling stations. Secondly even if the sector is deregulated,

and where oligopoly seems to exist, operator/marketers do not have the monopoly to

increase or decrease prices of petroleum products at will, as it will be automated or

determined by market fundamentals.

According to the United Nations Department of Ec onomics and Social A ffairs

(UNDESA, 2007), the production and utilization of petroleum products from crude

oil locally enhances access to sustainable, affordable and renewable energy and

economic development.

Msangi, et al. (2007) in a study of global scenarios of deregulation, impacts and

implication, focused on three alternate scenarios; a conventional scenario which

focused on rapid global growth in the development of altern ative to petro production

under conventional conversion technologies; a second-generation scenario, which

incorporates a softening of demand on petroleum products due to second-generation

lignocelluloses (materials that are difficult to decompose ) technologies becoming

available; and a second-generation plus scenario, which adds petroleum productivity

improvements to the second -generation scenario and essentially further reduces

potentially adverse impacts from expansion of petroleum products.

The study findings reveal ed that the first Scenario resulted to dramatic increases in

world prices of crude oil, while the second Scenario of second generation cellulosic

conversion technologies and reduction of con ventional petroleum products, resulted

to softening effects on petroleum prices. And the third Scenario of second generation

plus technologies produced petro technological investments resulting in expanded

production and softening of crude oil prices.

The study by Msangi (2007) incorporates the various arguments of petroleum

production phases and technologies. The study paints the expected and anticipated

situation of each production phase, although the study focuses on deregulation policy,

it does none the less serve as a basis on which to develop a hypothesis. Looking at the

predictions of the first scenario (in which there would be a dramatic increase in world

prices of both crude oil) we want to formulate some kind of research question.

The question is would deregulation of petroleum products cause increases in prices of

other goods and services ? Although this study is not focused on inflationary trends,

projection made from the study can be used to make inferences based on simple

demand and supply laws.

Quite a number of writers acknowledge the dilemma that deregulation is likely to

pose. A ccording to Naylor (2007) the potential impacts of large scale global

production of petroleum products on net producers and consumers in low income an d

developing countries presents challenges for not only national and international crude

oil policy planners but also ‘raises the question of whether sustainable development

targets at a more general level will be reached’. However the study revealed that the

ripple effects that will be generated by deregulation policy will depend on the country

in question and polices in play. The study revealed that only in recent times have

prices for other petroleum products moved systematically in the same direction, a nd

that if the energy market began to determine the value of agricultural commodities,

food producers of the rural poor will benefit in the long run.

The work of Runge & Senauer (2007) supports the above assertion, in the ir words

‘crude oil economy has tied petroleum and prices of con sumable items together in a

way that could profoundly upset the relationships between food producers,

consumers, and nations in the years ahead, with potentially devastating implications

for both global poverty and food security’. Accordingly they fear of the likely future

hikes in food (cassava and sugarcane produces) prices in the developing countries, to

the spanning growth of ethan ol industries, which are consuming more and larger

shares of cassava and corn. They revealed that the emergence of cassava refining

industry for ethanol would further triggered price increases in not only corn but other

none related petroleum production of other crops that had been converted to cassava

production which has become more profitable. This assertion seems too casual an

analysis as there are other factors that may have affected crude prices such as

increase in refining cost, acquisition for new technology, rising demand for petroleum

products based on consumption acro ss the globe such as India and C hina, global

crisis such as war or communal crisis, natural disaster across the globe, etc. Ethanol

may not be the sole driver of international crude p rices as its remains uneconomically

viable.

Studies by De La Torre Ugarte (2006) support this assertion. According to him there

exist links between access to energy and poverty alleviation and development.

Petroleum economies present a long term developmental opportunity for agriculture

and rural areas, being an industry in which the potential demand out passed the

potential supply. He noted however that a diversion to the production of petroleum

compliment (ethanol) or bio energy by developed countries will have an adverse

effect on global food supplies among developing countries as they would be worst hit

stages in food supply and increase prices.

According to Cotulla, Dyer and Vermeulen (2008) petroleum production may offer

increased income generating opportunities for the rural dwellers thereby increasing

their access to agro -mechanised farming . H owever, competitio n between crude oil

and food, as an end-use of the same crop (e.g. maize, sugarcane) or as alternative land

uses (e.g. oil palm versus food crops), may increase pressures over world food prices

in the long -run years ( Cotulla, Dyer & Vermeulen 2008). Rising crude oil prices are

likely to have negative effects on access to food for poorer and more vulnerable

groups. These pressures are likely to be exacerbated by the strong demographic

growth and the rising urbanisation common in African, Asian and South Amer ican

countries.

According to Brian Tokar et-al, (2007) the continuous adoption of regulation of

petroleum products has given rise to monoeconomy, of other industrial goods backed

by government policies and huge investments, others such as bio fuels have translated

to higher food prices, mass deforestation of tropical forests, and destruction of

biodiversity.

Rosegrant (2006) revealed agriculture versus petroleum trade off in the refining of

crude oil production of petroleum products without improved tech nological

improvements. This he said could only be avoided with the development of cellulosic

conversion technologies, which from his projections could come on stream in 2015.

According to the Environmental Protection Encouragement Agency (EPEA , 2007)

first generation product testing on ethanol as complimentary good may cause food

insecurity (sugarcane/cassava) and trigger poverty but also emitting Green House Gas

(GHG) to the atmosphere. These assertions are in concurrence wi th the findings of

Msangi study on bio-fuel as alternative to petroleum products.

Having been acquainted with the deregulation debate it is important to understand the

concept of the policy. Adedipe (2009) defines deregulation as ‘When all people at all

times have both physical and economic access to sufficient petroleum products to

meet their consumption needs for a productive ec onomic development (Reily, 1999).

This entails that availability of petroleum products’ supplies is sufficient and

households have the economic power to access the petroleum products through their

own production, the market or other sources.

The definition of deregulation has evolved over t ime, reflecting on the various

perceptions and Policy dimensions and approaches to the notion and problems of

products availability. The continuing evolution of deregulation as an operational

concept in public policy has reflected the wider recognition of the complexity of the

technical and policy issues involved (Adedipe, 2009).

The concept of Oil and Gas reform initiative originated in the mid -1970s and

primarily focused on Petroleum Acts of 1974, supply and distribution problems with

emphasis on availab ility and price stability at national and international levels.

However problems of refining cost and lack of policy drive during the mid 1970s led

to the recognition of vulnerable groups and a subsequent redefinition of the 1974

Petroleum Act to reflect this new reality has passed through public hearing at the

National Assembly in late 2009 towards the reformation of the oil and gas industry

(Lukman, cited in Marine & Petroleum Nigeria, 2010).

Deregulation was then defined as ‘open access regime, that is , availability at all times

of adequate supplies of petroleum products in o rder to sustain a steady expansion of

the oil and gas industry at an affordable price being determine by market forces’

(Kupolokun, cited in A Story of the Deregulation of the Nige rian of Downstream Oil

Sector, 2008).

The concept of reform of the downstream subsector of the oil and gas sector gave an

elaborate definition of deregulation as:

‘a situation in which all concern, at all times have physical and economic

access to suffici ent, and safe availability of petroleum to meet the needs of

citizenry and preferences for an active and healthy competition with litter

intervention by government’ ) cited in Randazzo & Sassi ), producing Nations

which availability of petroleum was a compo nent and this concept was closely

linked with market fundamental’ (cited in IEO, (2003).

This resulted into the adoption of different country’s opinion on deregulation policy

and its application. This definition was further refined by industry scholars, the new

definition is thus:

‘removing government interference on the downstream activities, that is, a situation

that exists where all concern, at all times, have physical, social and economic access

to sufficient, safe and health competitive en vironment that will trigger economic

development with a view to meet the needs and purchasing preferences of its

citizenry’. (IEO, 2003).

Thus the main distinct but interrelated dimensions to deregulation are availability,

access, utilization and price stability. Availability of petroleum is said to be attained

when supply is a t equilibrium with demand and i s constantly and consistently

available to people or individuals in a country or in a reasonable proximity to them or

within their reach in o rder to meet their preferences. Petroleum utilization requires

energy sufficiency, affordability, stability, and a reliable supply of petroleum

products to people at all times to consumers (Randazzo & Sassi, 2007).

A number of factors are determinants of th e various dimensions of food security.

Food availability is influenced by availability of arable land and agricultural

production techniques and technology. Food access is directly influenced by food

prices and income levels, while food stability is influe nced by price volatility and

natural disasters. Food utilization on the other hand is closely related to health status

and access to clean water, (Abbassian, 2007).

Among the factors contributing to availability of petroleum, the most crucial

component is the performance of the upstream (refining and pricing) sector.

Domestic consumption of petroleum products is at the increase daily , while the local

refineries have failed to meet up with the rising demand of production hence,

importation becomes necessary to argument about 70 percent short -fall of the

expected total consumpti on, (Shapouri & Rosen , 1999). This study is principa lly

concerned with availability and affo rdability hence a level playing field for

competitors is necessary in the sector for reasonable marginal return on investment.

The L ukman’s definition covers all dimensions of deregulation policy and is

therefore too open -ended, broad, or complex for thi s study. Consequently, this study

does not seek to address open access regime impacts on all the dimension of oil and

gas sector but rather it intends to address downstream ac tivities (commercial) in a

relative manner. Hence, we adopt the definition of der egulation policy from the

Nigeria perspective focusing more on the sup ply and distribution strategy, (L ukman,

2010).

Our working definition is based on the effect of deregulation policy on the economy

of Nigeria narrowing down to Lagos State, and refers to the ability of a country to

refine enough quantities of petroleum products to meet the co nsumption needs of her

citizens. Deregulation entails ensuring that the quantity is sufficient and supply

reliable without necessarily depending on foreign imports.

Therefore a country’s level of sustainability of petroleum products is related to its

degree of dependence or independence on fuel importations. Having looked at the

various contributions of different authors to the deregulation debate, it is necessary to

make some comments. There are many aspects to deregulation policy , namely:

definition and nomenclature, politics and policy issues, deregulation advocacy and

economics, and finally the socio -economic aspects of deregulation, ranging from

competitive leve l playing field for competitors, availability, sustainability, price

volatility, and impact of deregulation on the economy.

Lukman & Dakurun (2009) have been very instrumental in providing overview of

deregulation, conflicts and promises and have expanded deregulation questions for

others to follow up. Adedipe, Gbadamosi & Oluwole (2003) have been more

involved in the politics and policies of deregulation but with emphasis on developing

economy. Msangi (2007) has been very instrumental in studying crude oi l policy and

price transmissions at the global level. Randazzo & Sassi, (2007) have contributed

very extensively on the social aspect of petroleum, they discussed in detail the

various effects of petroleum economy on the different aspects of social securit y and

also elaborated more on the socio -economic impact of crude oil policies as it relates

to OPEC benchmark. A major short coming of all the above studies is that none has

focused on the effect of deregulation policy on a micro scale. No study has been done

on a local scale to answer how social -economic factors could determine the outcome

of the impacts of deregulation on the macroeconomic ac tivities, their works have

nonetheless provided a foundation on which to answer the research question.

A summary of literature on deregulation policy debate reveal ed the existence of three

main groups; the proponents of deregulation (those who see deregulation as not been

a threat to the economy), the opponents (those who view deregulation as a threat to

economic deve lopment) and finally the in between group (those who perceive

deregulation as been both good and bad). Based on the knowl edge acquired from the

debate it is believed that deregulation policy is the best reform initiative for the oil

and gas sector and also for the entire macroeconomic structure, however the effect

and administration is different between countries and regions.

2.3. DEREGULATION POLICY CHANGE AND ITS IMPLEMENTATION IN

NIGERIA

There is great difference between policy making and implementation of public policy

as observed is the linkage betwe en a formulated policy objective and its

implementation stage determines a the failures or successes . This has remained a

major challenge of public policies, (Robert, 1972).

However, Ikelegbe (1994) emphasises that:

There is abundance of programme failure, res ulting from the Inability to

performance in terms of fulfilling of effectuating policy objectives or

intentions. Policy mandate and objective are rarely achieved. The final result

of implementation may resemble or may be related to the policy intentions, but

may not be precisely what was intended or mandated. The implementation

stage is therefore very important. It determines whet her policies become

realisable or aborted.

Furthermore, Robert and Clark (1982) attributed non-implementation of public policy

to socio-economic and political factors. These constraints include long delay in

execution of the plan, inflationary trea d submerging actual cost, and sub -standard

building materials used for the execution of contracts, low investment i nitiative due

to socio -economic instabilities, unstable government policies, and unnecessary

disposal of resources among a number of small uncoordinated contracts.

There are three features associated to maladministration and incompetence: lack of

trained experts to actualise th e complex programmes and projects of government for

economic gains; lack of political will and support from public servants, technocrats,

bureaucrats and the easy manner with which some Third World bureaucrats

manipulate statistical data to conform to their political aspiration or bidding.

From the economic point of view, policy implementation is hampered due to

government inability to financially execute a project or implements policy thrust, as a

result of large dependence on Western bloc for foreign loa ns and grant with stringent

conditionalities to assess the loan which in most cases adversely impact negatively on

the local economy. The political constraints to policy implementation can be

attributed to the unprofessional policy styles of most developin g economy. For

instance, a situation where the per c apita income of a citizen is less than a $1, it then

becomes obvious that the citizen will seek for alternative sources to augment his

financial deficiency. This implies an invitation to corruption charac terised by

falsification of official document, inequitable distribution of power, which is often

the case in plural societies. The underlined statement is that ineffective policy

implementation results into economic setback.

One of the more remarkable c hanges in public policy in the past few decades has

been the liberalization of several sectors of the Ni geria economy, including financial

institution, and telecommunications industry. These changes challenge the

conventional wisdom about sub -government power as well as the permanence of

government agencies.

The fact that deregulation has occurred in several public sectors within the span of

nine years has heightened interest in expl anations of policy and regulatory change.

The bureaucratic politics and economics literature suggests that it is difficult to

change policy bec ause of powerful sub -government elites , the alliances among

congressional committees, the regulated interests, and the regulatory agencies. Earlier

studies of policy changes , such as those by Schattschneider (1960) or Fritchler

(1969), argued that change is required for the development of a large coalition of

interests to overcome sub-government dominance. While this literature pointed in the

right direction, it fails to account for changes in preferences within the sub

government alliance partners that can be brought about by new ideas, technology, and

economic developments.

Some of the most recent literature on de regulation has focused on these kinds of

societal changes that undermine a unified sub government by involving other actors

such as the president or the courts. The most prominent explanation postulates that

ideas developed by economists and popularized by journalists created a pro –

deregulation climate of opinion that convinced policy makers to support policy

change Derthick and Quirk, (1985); and Quirk, (1988). The economists’ argument

was that regulation causes inflation and slows productivity, and that d eregulation

would unleash the powers of competition and spur economic growth. Presidents were

elected who held this view, and they appointed people with similar beliefs so that the

regulatory agencies would reduce and elimin ate regulations. Legislators wer e also

caught up in the climate of opinion favo urable to deregulation and gave its approval

to changes initiated in the executive branch, despite opposition from the regulated

industries and congressional oversight committees, economists held to their beli efs

that policy implementation direction allows economy to strive on its own without

undue policy pressure.

Another explanation of deregulation focused on economic and technical change s in

society and its impact on the regulated f irms (Hammond & Knott, 1988). Sometimes

economic and technical change s permitted regulated firms to circumvent the

regulations. In other instances economic and technical change s fostered the birth of

new firms and products outside the regulatory guidelines. These firms turned to the

courts to challenge the regulatory restrictions that prevented them from entering the

market. In general, because regulations proved to be inflexible and unresponsive to

these economic and technical developments, regulated firms were often unable to

compete successfully against the unregulated firms. Congressional approval of

deregulation legislation served to ratify changes that had already taken place in the

economy.

The problem with these explanations is that neither regulation nor deregulation can

adequately explain changes in all sectors of the economy. The economic s and

technical change s explanation works better for ban king and telecommunications,

either of these cases, there were significant lobbying for change and for the

development of competitive firms through technical and economic innovation. In

contrast, the climate of opinion explanation works better for public transportation and

communication, since in these two cases ther e were relatively little technical and

economic innovation which fostered outside competition and the regulated industries

opposed change. The other limiting feature of these explanations is that both fail to

address the role of government institutions in determining policy change.

If government institutions fail to take an active role in policy change and also do not

serve as a filter or lens to shape different policy outcomes in different sectors, as

these arguments seem to imply, would we expect to fin d variation in policy change

outcomes from one sector of regulation to another. The climate of opinion

explanation would predict little variation from one economic sector to another in

legislative outcomes since the deregulatory idea attacked price and entry regulation in

general, not the specifics of any individual industry. But if differences in policy

outcomes do appear, they should be closely associated with difference in rates of

technical and economic change, if the second explanation is correct. However, both

types of explanations posit a single cause, either climate of opinion or

economic/technical change. Neither explanation examines the interaction among

causal factors, including the role of the various institutions involved in the policy

process.

From the above therefore, it should be noted that the scope and comprehensiveness of

some policies might experience implementation bottleneck arising from any, or a

combination, of the following: lack of appropriate technology for implementation;

inadequate human and material needs; over -stretching of available resources for

maximum visibility and impact at the end of which nothing may be achieved.

2.4. POLICY OF REGULATION, DEREGULATION, PRIVATIZATION AND

LIBRERALIZATION IN NIGERIA

Derlef (2005), the terms “liberalization” and “privatization” have been used for

quite some time now to describe two interlinked developments with a notable impact

on public service delivery. He examines two questions:

• What demands do these trends make on government steering capacities;
• What effects do they have on decision -making processes a nd on the positions

of citizenry, country and leadership in the structure of power

The issue is government steering requirements and the associated shifts in power. An

outline of the types and extent of liberalization and privatization is followed by

examination of the major demands on government with respect to goal definition,

contract design, coordination, and contro l in service delivery . The roles and

capacities of Area Council and Governor have changed over time in the repositioning

of the structure of local government. But their capacity to act is also limited when the

structure is confronted by oligopolistic corporate structures.

Wohlfahrt (1999), Privatisation and liberalisation are often mentioned in one breath.

This convention arises from the observation that setting a framework for competition

involves both a narrow concern with economic efficiency and the pres umption that

the private sector “can do it better.” In addition , liberalisation has induced

restructuring of the market in the infrastructural field. This has put local utilities

under considerable pressure to achieve competitiveness. The reorganisation of

municipal utilities has required spin -offs and privatisation to eliminate the

(cameralistic) constraints of public administration and to find strategic partners

whose financial aid and technical know -how they saw prospects of holding their own

in competition.

The development of a “municipal group” cannot be understood without considering

the change in prevailing regulatory policy . Although New Public Management has

manifested itself in Nigeria public reform in the guise of the intra -administration

“New Steering Model,” the far -reaching discursive change in which privatisation has

been embedded is characterised by a narrow, cost -focused pre -occupation with

efficiency, by a conviction that private enterprise is internally better organised, and

by efforts to draw a stronger dividing line between politico -strategic control and

operative service delivery. The model underlying the discussion was that of the

“ensuring State.”

Deregulation is a marked tendency for government to consider the broad topic of

outsourcing and privatization against the background of financial crisis, i.e., primarily

to address cost aspects and debt reduction. But, apart from fiscal considerations, what

are at stake are the strategic value of the given entity and the precise specification of

services. Since corrective political influence is greatly weakened once the contract

has been signed, prior, detailed definition of the contracted tasks is vital. The

question always arises in the political debate as to whether and, if so, what criteria are

important to the municipality over and above pure economic efficiency. Such criteria

include social and ecological aspects. But they can also include the deliberate

promotion of local economic structures by explicitly involving local SMEs in service

delivery. Finally, the possible loss of control needs to be taken into account. Hence,

the sale of public housing stock is controversial. Some cities, like Ibadan, Lagos and

Kano, regard property agencies as essential tools for integrated urban development

and social policy, and are therefore very skeptical about selling such municipal ass ets

as Abuja has done, (Aremu, 2001).

A comprehensive and in -depth debate on goal definition is important prior to any

form of privatization, because it is difficult to co rrect specifications afterwards.

Tendering procedures, which, depending on the scope of the project, may be Europe –

wide, need to be detailed and legally watertight to fend off any legal action by

unsuccessful bidders, an increasingly frequent occurrence. The outcome of the debate

on goal definition then feeds into contract negotiations, which firmly establish the

future client -contractor relationship. Once contracts have been concluded, every

subsequent modification to goals can face “lock -in effects” becau se the municipality

now depends on the willingness of the private firm to accept any changes.

For all types of privatization, the specific design of contracts is a business involving

high transaction costs because the specified goals and criteria are to be set out in

legally binding form and the risks of service provision distributed with binding effect.

Risk allocation, in particular, has a strong impact on the financing of privatization,

since it is reflected in interest rates. Local authorities require e ither negotiating

capacity of their own or bought -in expertise. The government decides on the

modalities of privatization, setting price -performance ratios, determining (flexible)

incentive and sanctioning mechanisms, risk allocation, inalienable rights of disposal,

and the composition and remit of shareholders’ meetings, advisory boards, and

management.

Once the contract has been drawn up, a third control requirement imposed by

liberalisation and privatisation is the actual coordination of public service p rovision.

In a local landscape embracing public administration, spin -offs, formal and material

organisational privatisations, local authorities have to cope with the centrifugal forces

generated by the individual entity’s tendency to act in isolation. One possible

consequence of such centrifugal service provision is a loss of the capacity to take

concerted action in important cross-sectional fields such as urban development, social

and economic development policy, and in dealing with demographic change. The

public ensure function of the municipality would then be severally restricted. In

addition to the entire contractual complex, two coordination mechanisms are

currently in evidence. First, units and steering committees are established in the upper

echelons of administration and interfaces developed in the relevant agencies. The

administration reorganises itself internally to create the capacities needed for

coordinating service delivery. Second, functional networks form in various policy

areas, integrating the private, public, and quasi -private entities involved in service

provision. These networks develop in obedience to the functional requirements of

producing public goods and services. They can also owe their development to the

desire of key local actors to establish bonds in a particular field for strategic reasons.

And, finally, networking is reinforced by state, federal, and EU aid programmes in so

far as appropriate subsidy guidelines and complementary financing sources make

funding contingent on cooperation between local actors.

Deregulation is different from liberalization because a liberalized market, while

often having fewer and simpler regulations, can also have regulations in order to

increase efficiency and protect consumers’ rights, one example being anti-monopoly

legislation. However, the terms are often used interchangeably within

deregulated/liberalized industries, (Harrod, cited in Issa, 2001).

Under a broad perspective, Braide r (2005), posited public opinion, that privatization

as both deregulation is the transfer of public wealth to private management.

Deregulation covers a wide spectrum, and cut across all sides of t he argument.

However, in the case of deregulation policy in Nigeria, some school of thoughts are

doubtful about its realization whether in the oil and gas sector or other industrial

sectors of the economy due to insincerity of implementers.

But Braider is optimistic of the viability and desirability of deregulation freeing

government control of activities in exploration, refining, marketing, exportation and

importation. He concluded by advocating for phases of deregulation policy in Nigeria

so as to enable State-owned operators to attain reasonable efficiency before they are

unbundled.

2.5. DEREGULATION IN DEVELOPED COUNTRIES

According to Hooper (1998), deregulation in the developed and developing economy

has triggered number of theoretical discus ses and intellectual controversies amongst

industry scholars. These sections consequently identified two salient enduring

schisms discernible in such discussion on the two concepts and link them with their

historical development. However, the concept of develo pment like many other

concepts in social sciences remains ill-defined and contested. As Gerzl (1995) asserts,

“There is no consensus as to what development means and requires “.The concept of

development as used here suggests both a process and a condition . It is a process, in

so far as attention is given to the means whereby a society may transform itself so

that it achieves self –sustaining economic growth. Based on this, Dickson (1997)

conceived development as “an ongoing process of qualitatively amelior ated social,

political and economic change”.

The term is also used to denote the condition reached by those societies that have

made the successful transition to development “as the condition in which the

individuals are more aware of , and have greater a ccess to (such) new technologies ,

and are induced to take advantage of their possibilities through the working of market

forces “. To view development as a “multidimensional process involving change s

from a less, to a more socially desirable state “.

According to Rodney (1972), development is a many sided process. At the individual

level, it implies increased skill and Capacity, greater freedom, creativity, self –

discipline, and responsibility and material well -being. At the level of social groups,

development implies an increasing capacity to regulate both internal and external

relationships. Rogers (1969), defines development as a type of social change in which

new ideas are introduced into a social system in order to produce a higher per capital

income and levels of living through more modern production methods and improved

social organization.

From the above definition, therefore, development involves a structural

transformation of the economy, society, polity and culture of the satellite that permits

the self -generating and self – perpetuating use of development of the people’s

potential. From the above submissions on the concept of development, in the context

of competitive advantage of a nation, transformation of industries through the process

of deregulation is of considerable interest to strategies researchers as well as to policy

planners. As far as deregulation is concerned, developed countries such as the United

States of America , Britain and rich nations with resources seem to be comparative

more advanced in a deregulated economy, (Ikelegbe, 1996).

On the energy sector, Oyama (2000) argued that deregulation of petroleum and

natural gas industries in the downstream divisions is a global trend and developed

countries were among the first to liberalise such sector. Deregulation in developed

countries had been an important driving force for the economic growth of developing

countries, now a tren d towards intensified p rotectionalism in major developed

countries. While this would harm the interests of the developing countries, eventually

it would harm the developed countries as well. It was imperative that each country

formulates policies for economic and social development in accordance with its own

national conditions. The differences in level s of economic development should be

recognised, so as not to force developing countries to remain in lock -step with

developed ones in the process of deregulation or liberalization of trade investment.

World Bank Report (2005) has it that liberalization and deregulation of infrastructure

services are not limited to developing countries only. These are key issues as well for

developed countries. The United States of America, for example, began to deregulate

its US$215Billion electricity market in 1998. Sim ilarly the Financial Times has

reported that nine individual states (California, Montana, Illinois, Michigan, and

Pennsylvania) have either finalized a prescriptive legislative or regulatory plan or

began to phase in retail access to electricity, and that 24 states have begun allowing

consumers and wholesalers a choice in electricity markets. The issue of deregulation

in utilities is still actively debated in the USA.

The Emergency Natural Gas Act (signed February 2, 1977) was a mix of regulation

in response to OPEC price hikes and deregul ation and the 1973 oil crisis in the U.S.

The Airline Deregulation Act is also a notable example. Its reintroduction of

competitive market forces to the heavily regulated commercial airline industry was

highly successful.

Communications in the United States (and internationally) is an area in which both

technology and regulatory policy have been in flux. Rapid developments of computer

and communications technology particularly the internet have increased the size and

variety of communications offerings. One can see an emerging era in which wireless,

traditional landline telephone , and cable companies increasingly invade each others’

traditional markets and compete across a broad spectrum. The Federal

Communications Commission and Congress appear to be attempting to facilitate this

evolution. In mainstream economic thinking, develo pment of this competition would

militate against detailed regulatory control of prices and service offerings, and hence

favour ‘deregulation’ as to prices and entry into markets. See for this line of thinking

Crandall, “Competition and Chaos U.S. Telecommu nications Since the 1996

Telecom Act”, Brookings Institute, 2005. On the other hand, there exists substantial

concern about concentration of media ownership resulting from relaxation of historic

controls on media ownership designed to safeguard diversity o f viewpoint and open

discussion in the society, and about what some perceive as high prices in cable

company offerings at this point. See for further development of this area

Telecommunications Act of 1996 and Concentration of media ownership.

The financial sector in the U.S. has evolved a great deal in recent decades, during

which there have been some regulatory changes and the creation of new financial

products such as the ‘securitization’ of loan ob ligations of various sorts and ‘credit

default swaps’. Among the most important of the regulatory changes was the Gramm-

Leach-Bliley Act in 1999, which repealed the parts of the Glass-Steagall Act which

had not already been repealed. This 1999 Act took down barriers to competition

between traditional banks, investment banks, and insurance companies, and allowed

firms to participate in all thre e markets in some circumstances , ( Sullivan, Arthur ;

Steven, Sheffrin 2003).

Australia was an early leader in deregulation with a broad programme of deregulation

beginning in the early 1980s. Having announced a wide range of deregulatory

policies, Labour Prime Minister Bob Hawke announced the policy of ‘Minimum

Effective Regulation’ in 1986. This introduced now familiar requirements for

‘regulatory impact statements’ but it took many years before the policy was complied

with by government agencies. Australia experienced deregulati on of their labour

market during the late 1980s under Hawke/Keating Labour governments. The country

saw extensive deregulation of the labour market beginning in 2005 under John

Howard’s Liberal Party of Australia through their Work Choices policy. However it

was reversed under the following Rudd Labour government. In 2007, the Rudd

Labour Government promised extensive deregulation, particularly in the business

sector, appointing Lindsay Tanner Minister for Finance and Business Deregulation.

Argentina underwent heavy economic deregulation, privatization, and had a fixed

exchange rate during the Menem administration (1989–1999).

Canada experienced deregulation of her Natural Gas , with the exception of some

Atlantic provinces and some pockets like Vancouver Island. Most of this deregulation

happened in the mid 1980’s, The province of Ontario began deregulation of electricity

supply in 2002, but pulled back temporarily due to voter and consumer backlash at

the resulting price volatility , (Rose, Seely et -al, 2006). The government is still

searching for a stable working regulatory framework, (Kahn, & Alfred, 1988).

The current status is a partially regulated structure in which consumers received a

capped price for a portion of the publicly owned generation. The remainder of the

price is market price based and there are numerous competitive energy contract

providers. Th ere is price comparison service operating in these jurisdictions. The

province of Alberta has deregulated their electricity provision. Customers are free to

choose which company they sign up with. However there are few companies to

choose from and the price of electricity has increased substantially for consumers

because the market is too small to support competition.

The air industry in Europe was deregulated in 1992 and gave carriers from one EU

country the right to operate scheduled services between other EU States. The

situation is not different in Japan. Since the economic bubble in 1990s collapsed, the

Japanese government has seen deregulation as an eff ective way to lift its economy

because it has a huge deficit and cannot make a large tax cut.

Russia went through wide -ranging deregulation (and concomitant privatization)

efforts in the late 1990s under Yeltsin, now partially reversed under Putin. The main

thrust of deregulation has been the electricity sector, with railroads and communal

utilities tied in the second place. Deregulation of natural gas sector is one of the more

frequent demands placed upon Russia by the United States and European Union; the

taxi industry was deregulated in Ireland leading to an influx of new taxis. This was

due to the price of a license dropping overnight. The number of taxis increased

dramatically. This was good for the consumer and bad for the driver;

The “Deregulation” movement of the late 20th century had substantial economic

effects and engendered substantial controversy. As pre ceding sections of this study

indicate, the movement was based on intellectual perspectives which pres cribed

substantial scope for market forces, and opposing perspectives have been in play in

national and international discourse. The article on neoliberal thought in this

encyclopaedia sets out a well documented discussion of these opposing perspectives

and evidence adduced to support them.

The movement toward greater reliance on market forces has been closely related to

the growth of economic and institutional globalization in the sixty year period

between about 1950 and 2010. The articles on Globalization and on the anti-

globalization movement in this encyclopaedia provide extens ive discussions of the

globalization movement and the concerns and objections which it has engendered ,

(Barnun, 1998)

Thierer (1998) wrote, “The first step toward creating a free market economy is to

repeal the federal statutes and regulations that hinder competition and consumer

choice,

2.6. DEREGULATION IN DEVELOPING COUNTRIES

Crude o il b usiness is more of global concern; hence, it’s a major determinant in

socio-economic and political structure of any economy. Few instances of developing

countries that have embraced deregulation are cited as follows:

Latin America’s Experience: Following the first Oil shock in 1970s and 1980s, the

balance of payment crises became acute in Latin America. At the same time, a

combination of low growth and periodic crisis resulted on how the first overall state

development strategy had been followed in the previous forty years, particularly on

the state intervention and import- Substitution Policies. Disenchantment with import-

Substitution policies and government intervention was deep in those countries and

the trickle effect was an extreme macro-economic distortion with very low and dim

prospects for sustainable growth.

In the 1970s, they implemented economic reforms that aimed not only at controlling

inflation but also at changing the overall development model, with reduction o n

government intervention, increasing use of markets fundamental, and a greater

integration into world economy. The reform packages also entailed sh ort-term

stabilization policies, as well as long -term policy aimed at progressively removing

government intervention in Product and factor markets, (Corbo, 1990).

In Uruguay and particularly in Chile, the serve external shocks of 1973-1974 on these

economies created the need to deregulate and opening up of their free trade capital

flows, commodity and factor markets. These measures were expected to contribute to

a sustainable sta bilization and benefit resource allocation, eliminate recurrent bo ttle-

necks, and lead to hi gher growth. Chile went further in her economic liberalization,

followed by Uruguay, while Argentina only made little progress. The initial policies

successfully eliminated the barriers to balance –of- payments. (Corbo, et-al)

However, in the implementation of the se reforms, political resistance has been a

major impediment in relation to the public sector, the trade regime, and t he labour

and domestic markets with stronger opposition from rent seekers who have

traditionally benefited from a large public sector gesture, (Argentina and Brazil are

good examples here), and from the owners and employees of highly protected

industries. Major progress has, however been achieved in controlling inflation in

Bolivia, Costa Rica, Chile and Mexico at the instance of deregulation policy, (Corbo

& Domilo, 1987)

Mexico, Costa Rica, Bolivia and Honduras have made inroads in the deregulation of

their foreign economy, in spite of all the Socio -economic and political difficulties

encountered, there is an increasing acceptance in Latin America of the notion that to

facilitate growth and development of the reform program me, eff ort has to be

sustained. The recovery of this sustainable economic growth depends on consistency

in reform policies implementation that would generate more investment a nd higher

savings. That is, recovery of investment requires a stable and predictable macro-

economic environment where long-term commitments can be made. On the other

hand, higher financial savings is required to boost investment and reduces external

borrowing, (Easterly, 1990).

Nigeria’s Experience: From the ‘post oil boom era’ m acroeconomic indices has

played vital role in the determination of economy development through its

components such as lev el of inflation, output level of agricultural produces, level of

money supply, interest rate vis -à-vis exchange rates o f our country’s currencies etc

especially after the demise of oil boom of the ‘70’s, the revenue allocation system

remained one of the cr itical destabilizing factors in the Nigerian Federal experiment.

The choice of oil remind tied to its status as the physical basis of Nigeria state

accounting for over 80 percents of Federal Revenue and 90 percent of foreign

exchange earnings. Beyond this, it feeds into struggles over control of assets and

distribution of various factions of the existing rule class with revenue allocating

largely implementing the allocation of oil revenue. Hence, oil remains the central

focuses to politics of inter and intr a-government relations. The economic crisis and

transcendent of destabilizing tendencies within the system, the politics of oil

determines the political economy of fiscal Federalism, confronts the power relation

that underlines the authoritative allocation of resources among the various tiers of the

Nigeria Federation. By the same logic, it deals with the outcomes the allocation under

which it breads crises.

At the inception of Obasanjo’s reign in 1999 there wa s the strong desire to energise

the economy, hence the introduction of various reforms agenda such as; Privatization

of government enterprises, Liberalization of the economy for full private

participation; deregulation of the petroleum, downstream sub -sector; and the

recapitalization of financial institutions, all these are macroeconomic driven policies.

Government over the years had regulated business activities in the past by being

major player in commercial operation of the e conomy, that is, Government has

always had state fiat monopoly in the operat ions of various industries. In a market

guided economy, price is the determinant of the performance of the entire economy

with respect to level of output, inflation, and money supply; Government had

subsidized price in certain sectors of the economy, notab le amongst them are:

Petroleum sector (downstream), power (electricity), Agriculture, Telecommunication,

etc; This level of subsidy and regulation of the activities of industries in these sectors

had led to in-efficiency and bureaucratic bottleneck in the business of these industries

and the sectors (in so doing the economy as a whole). In the other hand, if it had been

only subsidy without government control of activities of business perhaps market

prices would have been determined first before a guided pr ice is negotiated by

Government: so that the difference between this prices would have only be infected

into the sector (market) by government as a form of subsidy.

A market guided economy could be referred to as deregulated economy, that is,

when an econ omy is deregulated with or without government subsidy it leads to

increase in national employment and output, reductions in inflation and money

supply will be kept at a level of national output level and level of inflation.

Nigeria is Africa’s largest producer of oil after Libya and the seventh in the world

has experienced all changes associated with oil after 1995. History has recalled the

series of crisis that usually heralded past period of product price adjustment with its

adverse consequence on the ec onomy whether positive or negatively it all actual

depend on one’s analytical point of view. For a period of 50 years the Petroleum

companies (major marketers such as Texaco, Total, Mobil etc. and the recent

independent marketers, Oando, Obat, Zenon, Sahar a, Ascon, Ibeto etc.) source for

products themselves transported and distributed using their own retail outlets,

Nigerians paid market determined prices for petroleum products, the exchange rate,

hence relatively stable. In a regulated economy, prices wer e fixed by marketers in

agreement with Government as required by section 5 subsection 1 of the petroleum

product Decree of 1969. The country was then divided into 26 zones based on

distance form point of supply of products to the point of sale; therefore, prices were

fixed according to distance, (Madujibeya, 1976).

The downstream sector as a catalyst of supply and distribution of products across the

country became an issue from 1 st October, 1963 when government introduced

uniform pricing of petroleum products with regards to pricing and subsidy in the long

run the problem with the implementation of uniform pricing was that it was more

profitable to market petroleum products around t he sea ports and the main supply

services such as Refineries, Deports and Jetties which is mainly in the southern part

of the country. Monopolistically, the marketing companies were not willing to

expand their facilities to the hinterland since their core motive is to maximise profit at

minimum cost at the experience of the consumer. The establishment of petroleum

equalization fund (PEF) in 1975 to intervene in the pricing structure of petroleum

products was to achieve “price uniformity” without additional burden on any

individual marketing company, and sooner this was done, there was failure at the

countries implementation of the fund due to corrupt practices of officers charged with

the responsibility to administer it. Pricing became a perennial trauma accompanied by

various crises in the sector of the economy.

This situation led the Obasanjo’s regime to upward ly review petroleum products

pricing in June 2000: PMS was reviewed from N20 to N30; the bandwagon effect

was an industrial strike by Nigerian labour congress that almost crippled the

socioeconomic activities. Following the negotiation on the latter, the prices of

petroleum products were agreed as follows:

• PMS was reduced from N30-N22
• AGO was reduced from N29-N21, and
• DPK was reduced from N27-N17, (NNPC, 2000).

The argument advanced by Federal government was that, since petroleum products

are economic commodity it is only commonly that market forces determine its price.

However, the inconsistency associated with price volatility of petroleum products

become worrisome to economists, this scenario gave room for the review of the

industry activities and subsequently the deregulation of the downstream subsector in

2000.

According to Bergg (1997), Macroeconomics emphasizes the various interactions in

the economy as a whole. It deliberately simplifies the individual building blocks of

the complete interaction of the economy. Hence in this context, we cannot discusse d

the policy implementation of d eregulation or liberalization of the economy as it

relates to government enterprises, without make either concrete or précised references

to macroeconomic indicators that could dete rmine a better economic policy, (Amu,

1989).

2.7. THEORETICAL FRAMEWORK

As of the time of this research no theory has been used to explain the effect of

deregulation of the downstream petroleum subsector on the economy. This is due to

the fact that most studies on petroleum sector focus on ecological degradations,

pollution, privatisation, commercialization, liberalization and petrole um price

models. These studies have not linked any theories to the effect of government’s

deregulation policy. However, this study will use a theoretical framework to study or

explain the effect of deregulation on the economy of Nigeria with reference to L agos.

But before we introduce the theory elitism, it is imperative to highlight the Vision

statement of the Nigerian deregulation program, beca use it serves as the basis for our

choice of theory, thus:

The Nigerian deregulation vision stat ement as articulated by Lukman, aims to

‘drive the creation of wealth for Nigerians through; Open access regime, Price

liberalization; R eturn on investment for investors, and availability of

petroleum product (NNPC, 2008).

The key elements of this vision are, private participation for wealth and job creation,

sustainable development, energy self sufficiency, integrating oil and gas policy that

will be environmentally friendly and developing a booming home petroleum industry.

This vision statement is based on good intentions (plans), processes for executions

(actions) have drawn and results have been anticipated to be favourable. However,

does the vision statement have allowances or thoughts to been given to unanticipated

results? The answer is a resounding NO! It is in this l ight that this study adopts

elitism theory as the theoretical framework for this thesis:

Elitism is the belief or attitude that those individuals who are considered members of

the elite, that is, a select group of people with outstanding personal abilities, intellect,

wealth, specialized training or experience, or other distinctive attribute of elites are

those whose views on a matter are to be taken the most seri ously or carry the most

weight; whose views and/or actions are most likely to be constructive to society as a

whole; or whose extraordinary skills, abilities or wisdom render them especially fit to

govern. Alternatively, the term elitism may be used to des cribe a situation in which

power is concentrated in the hands of the elite. Those opposed to elitism are

considered supporters of anti-elitism, populism or the political theory of pluralism.

Elite theory is the sociological or political science analysis of elite influence in

society – elite theorists regard pluralism as a utopian ideal. Elitism may also refer to

situations in which an elite individual assumes special privileges and responsibilities

in the hope that this arrangement will benefit humanity or themselves. At times,

elitism is closely related to social class and what sociologists call social

stratification. Members of the upper classes are sometimes, though inaccurately,

known as the social elite. The term elitism is also sometimes used to denote situations

in which a group of people claiming to possess high abilities or simply an in-group or

cadre grant themselves extra privileges at the expense of others. This form of eli tism

may be described as discrimination.

The view, that formation of élites in some sphere is desirable, and that the status and

privileges of existing élites are worth protecting. Plato is the most famous advocate

of the view that government is the job of those who are superior in wisdom, but since

people are unlikely to recognize those wiser than themselves, this is not the usual

result of democracy.( Haralambos & Holborn, 2008).

Elitism theories as propounded by the Italian school of thought, Geraint Parry (1977),

Gaetano Mosca (1896), and Wright Mill (1963), all of the nineteenth and twentieth

century’s are conflicting theories on the role of deregulation as a public policy in

both developed and developing economies. The various elitists’ theories to be

examined include the System Analysis Theory by David Easton (1953); Institutional

Theory by dye (1978), Group theory by Eckstein Harry (1963 cited in Guy Peter),

Marx and Engels on power and the state, (cited in Haralambos & Holborn, 2008)

Mosca (1939) subsequently posited that, the ruling class was one of the first detailed

statements of the claim that even in a representative democracy there are smaller

circulating elites who are commissioned not only designated to rule by their

affiliation to the elite class, but ought to rule. He buttresses his argument as follows:

i. He belief that certain persons or members of certain classes or groups deserve

favoured treatment by virtue of their perceived superiority, as in intellect,

social status, or posses financial authority;

ii. The sense of entitlement enjoyed by such a group or class;

iii. Should Control, rule, or domination by such a group or class;

iv. The belief that government ought in princ iple, always and everywhere, be

confined to elites.

v. The belief that government is in practice confined to elites; that this has often been

justified by arguments from Plato or Schumpeter; but that this is undesirable

because elite rule is in practice, rule on behalf of the vested interes ts of (usually

economic) elites;

vi. The belief that governm ent is in practice confined to elites; that, following a

maxim of Hume, ‘ought to implies can’ (in other words, that there is no point in

saying that government ought to be controlled by the people if in practice it

cannot). These views are especially associated with Mosca , Pareto in the early

twentieth century, and Schumpeter in mid -century. All three writers shade into

elitism theory because they produce normative justifications of rule by elites in a

democracy. However, their earlier arguments do not in themselves imply that if

democratic control of the government were somehow achievable it would be

undesirable.

Mosca, a scholar whose contribution to p olitical science cannot be ignored, observed

that all but the most primitive societies are ruled in fact, if not in theory, by a

numerical minority, which he named as political class. Mosca together with Vilfredo

Pareto, Wright Mill, Robert Dahl (1961), Michael Maggiotto (1983) and Thomas Dye

(1976), developed the theory of Elitism and the d octrine of Political Class. (Ga etano

Mosca, the Free Encyclopedia, 2007).

Mosca systematically disregard Marx and Engels argument on classical democratic

thought on majority rule, he insisted on the impossibility of majority rule that e very

society is divided into those who rule and those who are ruled he noted; and the rulers

constitute only a small minority of any society. He argued further that Aristotle’s

classification, which divided political systems into three types (rule by one, rule by a

few, and rule by the many), does not fit into reality either, for no man is capable of

ruling by himself, and the many . It is the few, under any political system, who

exercise effective control.

Mosca disproved Marx and Engels argument on class struggle that in the end

(following the victory of the working class) leads to social harmony in a classless

society, he saw this assertion to be wrong also, that h istory features a re continuing

struggle among elites. That struggle will never end, and a classless society cannot be

created. Moreover, to the pioneers in the development of elitist theory, Marx placed

too much emphasis on economics and not enough on politics, which could b e

autonomous, (Aydinonat, 2008).

However, Marx, Engel s and the Italian scholars seem to have same bases of

argument. The Marxist theorists also agree with those elite theorist who sees power

being used to further the interests of the powerful. They noted f urther that the

powerful and the powerless have different interests and that these differences may

lead to conflict in the society. Unlike the elite theory, although Marxist approaches do

not assume that power rests with those who occupy key positions in t he state, they

see the source of power lying elsewhere in the society. That is, they see elites as those

who control the state through economic resources, and have different approach.

(Marx and Engels cited in Haralambose & Holborn, 2008).

The elite theory is founded on the platform of basic political principles centred on the

submissions of classical or liberal rational expectation. The elite include those who

occupy political power or seek to influence governmental decisions. This theory

therefore holds the view that in every society there exist a minority of the population,

which take s major decisions that are usually referred to as political decisions. The

theory posited that public policy such as deregulation reflects the values and

preferences of the elites, rather than the demands of the masses. The elites own their

positions to the control of productive resources of the society such as wealth,

economic might, power and education. By this policy of deregulation, the elites

assume it can render assis tance in revamping the industrial order (oil an d gas) for all

sectors of the economy, which could provide the much desired resources required for

the growth of nations especially developing countries such as Nigeria, (Easton,

1953).

Geraint (1977) noted that the elites have common interest in the preservation of status

quo, hence, most policies are conservative, non -innovative and marginally driven,

rather than those with bold and high change features. In buttressing his argument

further, he queried that po licies might often time be the interest of the masses, even

though the long term interest may be that of the elites, but this happens as

concessions to or reaction by the elites to threats of the status quo by the masses.

There is consensus among the elite s on the survival and stability of the society and

fundamental values. The consensus is based on individualism and vested interest in

the protection of their status quo. The elites sustain and stabilize the system in several

ways. It signs up citizens who challenge the system into the elite’s class so long as

they accept the basic elite accord. The elite provide a slow, gradual but some access

to the elite class so that change and stress could be averted. In order to preserve self –

status, avoid change and s tress, elite concedes to some welfare policies and public

demand.

Economically, based on the principle of demand and supply, the exponents of this

theory have argued that any public decision that changes the price of a commodity or

the relative income o f an actor will create an incentive or disincentive to acquire

more or less of the products. In the elite theory analysis, the policy of deregulation

was viewed within the framework of changes in rates of returns on investment across

sectors until such returns equalises across and within the economy.

2.6.1. Justification of Theory:

This theoretical wrapping up is borne out of the fact that the elite theory directs our

attention to the source of policy thrust and whose interest public policies serve. The

theory attempts to proffer a realistic explanation of the resources of policy by

predicting it in the elites rather than the proletariats. Classical democratic theories

assume that public preferences articulated by representatives are the main source o f

policy thrust. Realistically, the citizenry does not have any considerable influence on

public policies. These schools of thoughts (elite theorists ) have tended to see elite

power as cumulative and pervasive in all aspects of society. To them, the same f ew

wield power in all areas (Eckstein, 1963).

The concept of der egulation, according to Gbadamosi (2007), completes opening up

of all the segments of the downstream sector of the oil industry to c ompletion where

economic market fundamentals dictate pric es. Whenever market prices are at

unacceptable levels, stakeholders (perhaps the most responsible of them all) can only

intervene through the market variables of demand and supply, and not

administratively. He believed that deregulation is expected to remove the barriers in

products’ distribution, which will lead to efficient resources utilization. At the heart

of the deregulation of the petroleum downstream sub -sector is the controversy over

pricing volatility of petroleum products in Nigeria. The e xtremes have been whether

the prices should reflect their full cost or contain subsidies, especially against obvious

abuses and sharp practices in product sourcing and distribution.

Barendranath (2005) posits that deregulation is logically conceived as “a n instrument

used to trigger entrepreneurial activities, introduce disorder, change the rules of the

game and alter power of buyers and suppliers”. According to him, in the process of

deregulation, the threat of external players, imports and substitute pr oducts becomes

real and the strategy of the local players (the incumbents) may be found wanting, as

their competitiveness introduced by deregulation is severely tested at the boundary

conditions of export and import, as well as at the edges of local market by close

followers and new fleet -footed players in which some industry leaders may actually

get dislodged. In the process, Barendranath (2005) also argues that new enterprising

and “nimble player” may emerge, and the structure of the industry could under go

transformation, often with other cascading changes predominantly in terms of

fragmentation or concentration.

From the oil sector perspective, deregulation, according to NNPC (2003), “is the

opening up of the downstream sector of the petroleum industry to competition among

all players in the industry”. It means allowing every player the opportunity to refine

or import petroleum products for use in the country in so far as the products so

refined or imported meet quality specifications. It involves remo val of entry barriers

into the supply and distribution of petroleum products. Under the policy of

deregulation, no qualified and competent person and corporate body are prevented

from participating.

The policy of deregulation as viewed by Saliu (1998) “p rincipally involves the

liberalization of the logistic and pricing of goods and services”. According to him, it

is supported by the economic theory that a free market will result in the optimum

deployment of economic resource, but the theory derives from a simplistic model in

which time is not a variable and oscillatory phenomena, therefore cannot exist.

Munirat (2003) described deregulation policy as the removal of monopolistic control,

which should lead to the creation of level -playing ground, given ris e to competition,

which ultimately should lead to better and efficient services to consumers at the most

beneficial rate. In a related development, Stewart (1986:68) viewed deregulation as a

major key to improving greater investment and economic growth in all productive

sectors of the economy, in the sense that it will help in enthroning democratic and

popular capitalism, encourage competition and accountability, reduce

mismanagement and favouritism and allow efficient allocation and utilization of

resources.

Furthermore, since the main feature of any public policy is toward national

development particularly, for developing nations of the world such as Nigeria,

without enough basic capital and other resources to invest simultaneously in all sector

of the economy, then dereg ulation policy investment becomes imperative. If the

government wants to contribute their quota in assisting in achieving economic growth

in Nigeria and a higher level of efficiency in the oil and gas sector, the industry must

be deregulated. The nature of the deregulation programme should not be based upon

‘productivity investment’, even from the commercial point of view, it is a total

wastage. But, so long the policy serves the purpose of increasing demand, the

purpose is achieved.

CHAPTER THREE

RESEARCH METHODOLOGY

This segment of the study examine the method, design and characteristics of the

study population, sampling procedure, determination of the sample size, data

collection and procedure for processing and analysing the collected data. On this

research, we relied he avily on quantitative and qualitative primary and secondary

sources of data as further examined in chapter three.

3.1. RESEARCH DESIGN

Assessing the effect of deregulation of the downstream petroleum sector is quite a

new field and as evident from liter ature, most of the studies are qualitative.

Presenting an empirical work has been a challenge, however by combining works

from literature, government publications and data from the international energy

journal, federal bu reau of statistical division; we have been able to answer key

questions. The definition of deregulation was used to depict the various dimension of

product availability; investment security provided the knowledge which we used to

adopt the working definition for the purpose of this study.

Investment security for the purpose of this study is the ability of a country to produce

enough quantities of petroleum products to meet the consumption needs of he r

citizens. I t entails ensuring that the quantity is sufficient, the supply is reliable and

products are at affordable price without necessarily depending on foreign imports.

Using this definition of deregulation, deductions would be made logically from

findings from literature, government action plan and prevailing crude price and

economic conditions to answer the research question.

3.2. SOURCES OF DATA

The recent posture of government on the need to deregulate the downstream

subsector and the absence of empirical research (especially quantitative research) on

the effect of deregulation present a major challenge for a desk study. Most studies on

deregulation are mainly qualitative and generalized. Assessing the potential effect of

deregulation on global economic activities require an understanding of the policy

used and the region as well as the types of demand- supply substitution most sensitive

to the convergence of agriculture and crude oil, although there are qualitative

methods/models for explanations, quantitative models are limited, (Naylor, 2007).

The only quantitative study that touched potential petroleum economy was by Msangi

et al. (2007), the main aim of the study was to investigate the interactions of crude oil

demand and refining of petroleum products for industrialisation, in order to see how

scenarios for proj ected growth in petroleum products supply could enhance the

availability of petroleum products to the final consumer. The effects of deregulation

is used to capture salient issues on the changes that occur within the petroleum

reform initiatives as it affe cts the demand, supply and distribution of petroleum

products, as well as trade at the global (OPEC) level.

Few studies have been carried out in Latin America, Uruguay, Mexico, Costa Rica,

Bolivia and lately EI Salvador by International Energy Agency (IEA ) to ascertain the

effect of deregulation on the oil and gas sector. Using government policy frameworks

and action plans as well as ongoing activities by key acto rs ( stakeholders) and

making inferences from the combination of the two mentioned factors, res earchers

will be able to produce the possible potential effect of government deregulation’s

policy on the downstream petroleum subsector and the possible e ffect on livelihood

of Nigerians. The research style will be similar to the above but with some addit ions

and modifications.

This study focused on the eff ect of deregulation on the Nigeria economy with

reference to Lagos State, the commercial city of the country , and the methodology of

the study is based on two methods namely:

i. Primary sources of data (administration of questionnaires)

ii. Secondary sources of data (In -depth literature review) , adopting d escriptive

statistics tables, graphs and charts.

Descriptive statistics is used to describe t he main features of data (Bower, 1996). A

descriptive Statistics provides simple summaries about the sample and it involves the

use of means, average growth rates and frequ ency distributions (Manyongm, 2005).

Various techniques are used in descriptive statistics, these include a graphical display

of the data in which graphs and f requency distributions summarizing the

characteristics of the data comparisons between samples or tabular description in

which tables of numbers are summarized.

Key components to this research question are on domestic production/ consumption,

import and exports of the designated petroleum products. The main data are sourced

from; NNPC, DPR, CBN, PPPRA and Federal Bureau of Statistic. T he data has been

housed in 1999-2007 statistical year books. These corporate organisations’ statist ical

division assembles and disseminates statistical data on the effects of deregulation of

the do wnstream petroleum subsector on the Nigeria economy, with reference to

Lagos State . Nigeria corporate goals with OPEC countries have improved the

coverage, consistency and quality of the data sourced within the oil and gas industry,

hence, the federal governme nt determination to develop and improve the statistical

data for the petroleum commercial sector of the oil and gas industry. This corporate

database remains the most genuine source of data on oil and gas matters and related

activities especially on developing countries.

The Nigerian Federal Bureau of Statistics referral is usually made to public oil sector

when looking for petroleum related dat a on Nigerian oil and gas . The petroleum

distribution indicators database prepared by Nigerian National Petroleum Corporation

(NNPC), Directorate of Petroleum Resources (DPR), Petroleum Products Pricing

Regulatory Agency (PPPRA), Central Bank of Nigeria (CBN) Statistical year book

adjudged from other countries deregulation experience were used in our analysis.

The following indices have been identified as being important in providing answers

to our research question(s). This study takes an appraisal of the deregulation policy of

Nigeria with consideration on Lagos State economy and also looks at the total

population change during the study period and the change in population engaged in

petroleum consump tion as well as the urban population change during the study

period.

Attention is focused on the expected policy gains on deregulation, effect of

deregulation on Nigeria economy vis -a-vis Lagos State, the sorry state of our

refineries, supply and distribution mechanism, price volatility of petroleum products,

impact of subsidy on the national economy, consumpt ion pattern, and import regime

of petroleum products during the period under study.

All these indices were then discussed together with the oil and gas policy in

contextual manner as it relates to Nigeria and the deregulation debate. It also gives an

indication of the inadequacy of existing oil and gas law act of 1974.

The data for our study falls within 8 year time frame (19 99-2007), this is due to the

fact that there were no adequate data during the military era f or 1986-1999, while the

data from 2000-2007 were comprehensive on a lot of parameters used. We believe

that a 10 year time frame is not short for this kind of study.

Data on oil and gas activities are also drown from the OPEC database/ website. This

is needed so as to be able to forecast relative changes in petroleum policy taking into

account the plan of the government polic y reform initiatives on the downstream

subsector of the oil and gas industry. The government’s deregulation program me

document has been a major tool in this research, this document states government

plans and line of action for the deregulation program me. This document in

combination with the current Petro leum Industry Bill (PIB) of 2005 , which has gone

through public hearing at the National Assembly, are be used to make inferences on

what the possible and potential effects deregulation policy has on the Ni geria

economy.

Methodologically, theoretical and empirical framework for this study anchored

extensively on the effect of government deregulation policy of the downstream

petroleum subsector on the Nigeria economy, theories of petroleum products pricing,

supply/distribution and the of petroleum support fund (PSF) policy to cushion price

volatility in the market. This is attained through the use of statistical tables, charts,

and graphical analyses.

On this study, we rely on the primary and secondary sour ces of data as further

explained:

i. Primary Sources of Data

The sources of primary data on which the findings of this study were based are

the survey method using questionnaire administration on the res pondents, and

observations. According to Scheuren et -al (2004), defined survey method as

the gathering of information from a sample of individual, this sample is usually

just a fraction of the population being studied. A written questionnaire was

adopted and administered as primary instruments w ithin the target population.

This being so, a description of the target population, the sample and the

sampling size, techniques and analytical tools employed and the reason behind

the choice techniques are imperative for discussion. Sampling size is a

statistical quality used for research findings; this, in turn, relates to how the

result will be used. There is no sample size that can be used for all survey;

much depends on the professional and financial resources available.

ii. Secondary Sources of Data

The secondary data are diverse existing research work comprising relevant articles

in journals, conference proceedings papers, position papers, government gazettes

and law, output of commissioned research, all of which were framed to reflect the

direct need of this study. Data collated were harmonised on the basis of its

relevance to constitute a better review of literature for this work.

3.3. TARGET POPULATION

The target populatio n covered in this study were stakeholders, policy makers,

organised labour groups, economic scholars, industry experts in the petroleum sector,

consumers, high government functionaries, and respected members of the academia

who are very vast in the subject matter of this research work through learning,

practice and directl y confronted with the agony of price volatility associated with

scarcity/hoarding of petroleum products, low capacity utilisation from the refineries,

policy direction/decision and chan ges in all the twenty (20) Local Government

Councils of Lagos State mentioned previously will enable us to elucidate the effects

of government deregulation policy on the Nigeria economy.

3.4. POPULATION SAMPLE

According to Aakaer and Day as reported in Ibekwe (1999), sampling is an arithmetic

tool used to analyse generate d information from a relevant segment of a populati on.

A sample is part of a given population, and may or may likely not be seen as full

representatives of the population. Hence, this study is not intending to examine the

entire population of the sample fr ame due to the inaccuracy of a comprehensive

census of the population and consequently the limitation associated in obtaining

holistic information from the entire population.

3.5. SAMPLE AND SAMPLING TECHNIQUES.

A sample is a subset of the population whi ch is being investigated or studied with the

aim of generalising the outcome of the entire population. An adequate sample size

which represents the diverse characteristic of the population is thus taken. However,

there is the need to carefully watch agains t large sample size to avoid repeated

answers by respondents. Thus, sample sizes of 900 persons were drawn using random

sampling techniques, meaning that sample was drawn across both sexes and

occupation. That is, an equally unbiased method is used to reac h the relevant

respondents. Applying the table of random numbers, choosing without replacement

where applicable and selecting the names to be covered to achieve this. The

questionnaire was thus being administered in this regards.

The population and sample frame is further illustrated in a tabular form as shown in

table 3 below:

Table.3.

Population Sampled Cases

S/NO SAMPLE CASES

NUMBER OF

RESPONDENTS

RETURNED

QUESTIONNAIRE

1 PENGASSAN 100 90

2 NUPENG 100 96

3 OIL COMPANIES 300 281

4 PUBLIC OPINION 400 390

TOTAL 900 857

Source: Sample survey, March, 2010.

3.5.1. Questionnaire

In a bid to approach this s tudy, the questionnaires were designed and administered to

sampled population. Structure and compressed to arrive at combination of both open –

ended and closed -ended questions. The structure questions will help to reduce

variability in the meaning of the question with a view to ensuring comparability of

responses. In some instances, where the researcher was not sure of the possible range

of answers and wants the response to be exhaustive, the questions are open -ended.

This will create the enabling environment for freedom of personal judgement by

respondents. Nine h undred questionnaires (900) we re administered, four hundred

(400) being questionnaires in respect of the respondent’s data drawn from twenty

(20) Local Government Areas of Lagos State, comprises: Badagry; Ajeromi-ifelodun,

Amuwo-Odofin, Ojo, Epe, Ibju-Lekki, Agege, Ikeja, Alimosho, Ifako -Ijaiye, Kosofe,

Mushin, Oshodi -Isolo, Somolu, Ikorodu, Apapa, Eti -Osa, Lagos Island, Lagos

Mainland and Surulere to give a true representation sample of the respondents’

opinions of the civil society which cut across; traders , National Union of Road

Transport Workers (NURTW) , academia and others 300 hundred questionnaires

were administered to Oil Companies, comprises Major and Independent Marketers,

while the remaining two hundr ed (200) questionnaires were administered to the

labour Executive arm of PENGASSAN and NUPENG members, (Elizabeth, 2007).

3.5.2. Method of Questionnaire Administration

Except for the secondary information/data embodied in the literature review, most of

the data employed in this work came through the administration of question naires on

respondents. Structure questionnaire method ; that is, randomly staggered sampling

technique was used for all respondents . Care was taken in drawing up questions to

ensure better understanding for the respondents as well as to appraise t he right

response for the study.

In addition, personal observation was also carried out wit h a view to monitor as well

as assess the level of availability of the three white petroleum products (PMS, AGO

& HHK) at selected dispensary stations within Lagos State and its impa ct on the

economy.

3.6. METHODOLOGICAL CHALLENGES

Some of the expected challenges of this research are the time period differential

under study and data sources (statistical). Hence, it is important to note here that

despite restricting the scope of study to the effect of government deregulation policy

within Lagos State, research of this magnitude might have some challenges:

i. Personal sentiment or bias of the respondents as well as their subjectivity in filling

the questionnaires; and

ii. There are likelihood of minimal inadequacy in data sourcing;

Thus, we believe that this will not significantly affect our findings since even if we

had all the years we would have done some smoothening to produce trends. The

omission is not substantial to affect the result of the finding and its validity; hence,

the data from secondary sources will help to bridge up the gaps.

3.7. METHOD OF DATA ANALYSIS

James (1990) defined Data Analysis a s a process of inspecting, cleaning,

transforming, and modelling data with the goal of highlighting useful information,

suggesting conclusions, and supporting decision making. Data analysis has multiple

facets and approaches, encompassing diverse techniques under a variety of names, in

different business, science, and social science domains. The term data analysis is

sometimes used as a synonym for data modell ing. However, in the course of this

study, Content analysis was utilized as the major method of data analysis.

It should be noted that c ontent analysis is a research tool used to determine the

presence of certain words or concepts within texts or sets of texts. Researchers

quantify and analyze the presence, meanings and relationships of such words and

concepts, then make inferences about the messages within the texts, the writer(s), the

audience, and even the culture and time of which these are a part. Content Analysis

cuts across very good qualitative development categories, that is, existing primarily

quantitative analysis, related literatures on oil and gas downstream subsector,

achiever documentations, text books, or speech, journals, websites and newspaper to

see what th emes emerge, s ee how themes relate to each other, f ind latent emphases,

political view of writers, which is implicit or look at surface level – overt emphasis.

There are two broad aspects of content analysis normally used in research studies –

conceptual and relational.

Conceptual analysis begins with identifying research questions and choosing a

sample or samples. In this study, the application of the concept ual method of content

analysis enabled us to summarise, analyse and categorise data within our disposal to

arrive at a precise conclusion.

CHAPTER FOUR

DEREGULATION POLICIES IN THE NIGERIA PETROLEUM

DOWNSREAM SUBSECTOR

4.1. COLONIAL ERA

Prior to independence in 1960, Nigeria showed great potential of being a prosperous

nation on account of the abundant human and natural resources. The outlook was

further brightened by the emergence of crude oil reserves in early 1970s.

Consequently, a gre at deal of emphasis was placed by the government on the

implementation of series of ambitious developmental plans aimed at ensuring rapid

economic growth and development. In early 1970s, the overall economic

performance was impressive as the rate of growth of GDP for instance, averaged

about 8.8 percent between 1970 and 1974, massive inflow of foreign exchange

earnings from improved Petroleum prices as well as high rate of domestic and foreign

investments which helped to sustain the GDP growth rate, (Adelman, 1978).

However, the Agricultural Sector which used to be the back bone of the economy in

the 1960s, was neglected and consequently, its share in total domestic output dropped

from nearly 60 percent in t he 1960s to about 35 percent in 1975. On the Exter nal

Sector, the country enjoyed a favourable balance of payments position during the

period, owing to the significant boost from Crude Oil exports even though non -oil

exports became virtually extinct. With the huge earnings from crude oil exports,

government became the prime mover of the economy through direct participation in

basic production of goods and services as well as in the provision of infrastructure,

(Olukoshi, 1990).

From agro-economy to petroleum economy (the oil boom),t his study sought to assess

the effects of government deregulation policy in the petroleum subsector in Nigerian

economy with a case study of Lagos State of Nig eria. H ence, the Nigeria

socioeconomic situation could be likened to elitism theory as observed by Geraint

Parry (1977), Eckstein Harry (1963), and Gaetano Mosca, (Wikipedia, the Free

Encyclopaedia, 2007), whose view in this study is patterned to all but the most

primitive societies are ruled, if not in theory, but a numerical minority, which he

described as “the ruling political class.”

The transition from agricultural based economy to petroleum based economy would

not be justified without mentioning the role of agricultural sector in the Nigerian

economy. This significant change relied heavily on the new economic transformation

(crude oil) and impact of such a change on our foreign policy is significant. After the

civil war, (1970) Agriculture was completely out -stripped by Petroleum as the main

engine of growth. In a country that is in a hurry, with high priority given to

development, revenue from Petroleum exports provided the source of financing

various development programmes. The principal indicator in economic growth from

1970 showed that the Agricultur al Sector was already overtake n by Petroleum

industry, which then entered a period of boom. Export earnings from Petroleum were

used to offset the deficit and lapses from the other Sectors, especially Agriculture.

For instance, in 1974 when Petroleum contributed about N5, 317.6 million , the

contribution of the Agricultural Sector was below N5million. Since 1973, more than

75 percent of Nigerian’s foreign earning has come from Petroleum, (Hamilton, 1989).

Nigeria was lucky to have discovered quantities of oil at a time she needed her

foreign exchange most. As a result of the strong International Market, Petroleum was

exploited to the fullest in the 1970’s to provide the needed foreign exchange with

which to carry out her development programmes. The change from Agriculture to one

solely d ependent on Petroleum required a new adjustment to the external world

around us, it therefore indicate s the tune and hence justifies any changes in the

country’s external and internal policies. It was on this platform that Nigeria became a

member of the Oil Producing Nations (OPEC) of the world in 1970 if their interest as

a nation is to be protected. Nigerians were expected to make good use of the

opportunity offered by Oil and use the revenue offered to better the economy and the

standard of living of Nig erians. Nevertheless, the change to a shadowed sense of

reasoning and corrupt practices in the country seemed to have proved such assertion

wrong.

It was the oil money that gave Nigerian Military leaders the opportunity to be heard

in the continent of Afri ca and the rest of the World . In order to lessen the pressure of

economic dependence on external sources, the first National Development Plan

(1962-68), about N1, 307 million was expended for developmental programmes. T he

wide price fluctuation that charac terised Agricultural produce could not adequately

finance the development plan; hence government had to borrow 50 percent of the

estimate budget from the international community to cushion the proceeds from

agriculture, (Amu, 1982).

4.2. THE MILITARY REGIMES AND EXPANSION OF THE NIGERIAN

PETROLEUM INDUSTRY

The aftermath of the Nigerian civil war saw the emergence of the activist state as

symbolised by the formation of the second National development plan (1970 -1974).

The plan was essentially on the then reigning ideology of development with the state

cast as the prime mover. In addition, the war brought to the for e the growing

consciousness among Nigeria policy makers of the strategic importance of oil not

only in terms of engendering support for the government’s war efforts but also in

financing the ambit ious three “Rs” programme, ‘Reconciliation, Rehabilitation a nd

Reconstruction’ initiated by the military administration of General Gowon at the end

of civil war in 1970. The oil was only realistic source of the huge fund required for

all the above, as oil production in the country exceeded the one million barrels per

day for the first time. To give an additional boost to process of the creeping statism,

the first two refineries were established one in Port Harcourt and Warri in the 1970s

while additional petrochemicals plants was established in Kaduna and Port Harc ourt,

the economic nationalism that had characterised the first decade of independence was

given legal expression during the war and its immediate aftermath. First was the

promulgation of the Company and Allied Matters Act (CAMA) in 1968, which

forced all companies to be incorporated in Nigeria and provided the government

greater access to their accounts. This was immediately followed by the indigenisation

Act early in 1972, which in the absence of any significant private indigenous

entrepreneurs led t o the government eventually filling up the vacuum in many

enterprises, (Olurunfemi, 1983).

The above provided the background for the extensive and far reaching involvement

of the Nigerian State in the country’s oil and gas industry. It is not untrue that the

Petroleum Act of 1969 which provided the central legal framework for the sector was

promulgated by the military in the midst of the Nigerian civil war. The Act not only

formally vested control of oil resources in the Nigerian State but provided the ba sis

for all subsequent subsidiary legislation for the industry. More significantly, it set the

stage extensive institutional framework that would eventually develop to manage the

growing fiscal and equity interest of the Nigerian State in oil and gas industry.

The Nigerian National Oil Corporation (NNOC) Act No. 18 of 1971 was

promulgated by the military in Ap ril, to provide Nigeria with a s tate own ed

Company, which later became the Nigerian National Petroleum Corporation (NNPC)

through the NNPC Act No. 33 of 1977. This created a vehicle for the subsequent

equity participation that would not only energise the State own ed Corporation into

the biggest player in the industry but generate very fundamental consequences for

growth and control of the industry. The process of equity acquisition gradually

unfolded peaking at the end of the 1970s. In fact, even before the establishment of the

State Oil Company; Agip Oil Company, a subsidiary of the Italian giant had in 1962

offered the Nigerian Government a one third ( 1/3) stake in the Nigerian Agip Oil

Company (NAOC), being part of Enrico Mattie’s deliberate policy of undercutting

the major international oil companies in producing countries. This option was

immediately actualised into NNOC. Alson acquired at the same t ime was 35 percent

stake of the French Company Safrap being a barely concealed punitive measure for

France’s support of Biafra rebellion. More s ignificantly in this direction wa s the

declaration in February 1972 that henceforth no new concessions would be sold

wholly to foreign concerns and that all unallocated and/or abandoned oil acreage

would become the assets of the State, (Hamilton, 1989).

The above was followed by series of negotiation equity acquisitions starting with a 35

percent stake in Shell-BP, Gulf and Mobil in 1973. This was upgrade d to 55 percent

in Shall, Gulf now Elf, Mobil, and Agip/ Phillips in 1974. Others are Texaco and Pan

Ocean in 1975 and 1978 respectively. In fact, by July 1979 the Nigerian State had

acquired 60 percent of all the ab ove oil companies. In the case of Shell the stake of

the State grew to 80 percent when the assets of BP was nationalised due to its

involvement with the apartheid regime in South Africa in August of 1979, this was

reduced to 60 percent ten years later in 1 989. By the end of the decade, the joint

venture arrangement accounted for over 90 percent of daily crude oil production in

the country and Nigerian State through the NNPC controls 60 percent of the total

output. This situation persisted until the new mill ennium when the large offshore

acreages governed by Production S haring C ontracts (PSCs) started producing,

(Hamilton, 1989).

The problem of the oil and gas industry is that the Nigerian State intervened

profoundly into the industry without building the req uired capacity in policy making,

regulation and commercial activities in such a highly complex industry. Ineffective

and inefficient State control of all the major processes of the

industry has stunted its growth and developme nt. An example is the facts that while

all its peer s are gradually transforming into International National Oil Companies

(INOCs) with extensive operations abroad, our National Oil Company is still

grappling with funding the few resources and facilities av ailable to it at home. The

trickle effect is very obvious today in Nigeria economy. The end result of the

aforementioned is that the scope of change in the oil and gas industry over the years,

both globally and in the domestic sphere, called into question the adequacy of the

policy, regulatory, operational, and fiscal and structure frameworks that govern the

country’s Oil industry. The NNPC, for instance, has grown over the years to assume

multiple, and often time s conflicting roles, including those of poli cy formulation,

regulation, commercial operation and national assets management. It is embarrassing

therefore that the NNPC as a Corporation over the years has evolve d into huge cost

centre without the required strategic commercial focus. This has given credence to

low capacity utilisation and its inability to perform its role as International,

Integrated, Commercial Oil and Gas Company, (Okota and Douglas, 2001).

Likewise, the National Petroleu m As sets Management Services (NPA MS) was

established with clear expectation of its being in the forefront of our take over, as

operator, of our joint ventures. Evidently, this expectation is far from being met, over

four and the half decades is gone after the signing of the Joint Operating Agreement

(JOA), NNPC has failed to make any significant impact towards this direction,

despite being empowered by the joint agreement. Successive regime s simply

grappled with our cash call obligation in the ventures on coming to power in 1985,

the General Ibrahim Babangida Administration brought to alter the rules by which the

Nigeria’s economic game have be en played. The administration ’s policies of NNPC

as regards oil and gas sectors were designed to place greater emphasis on production

rather than mere trade to promote investment rather than consumption and to

establish more firmly the necessary link between effort and reward. Implementing

these policies led to a comprehensive reform programme, involving political, legal

and bureaucratic changes all aimed at breaking down the aged –old system within

the economy and unleashing the enormous creative and entrepreneurial potentials of

the Nigerian people, ( Gusau, 2008).

The administration’s polic ies and programmes, however, t hough initially acclaimed

by-cage and diverse segment of the population, so began to attract severe criticism.

For with the programme, came an unprecedented level of socio -economic suffering.

The group hardest hit was the socially visible and politically local middle class,

which enforced ever rising executors from the oil boom, while many members of this

class and the public generally, appeared to have under estimated the seriousness of

the country’s economic predicament and the harshness of the adjustm ent and

securities that needed to be made merely to halt the slid the administration itself

contributed in no -small measure to the crisi s of confidence which was soon to

envelop its own programme and subsequently flagged off a national debate on the

derivability or otherwise of an IMF structural adjustment facility. The adoption of

this strategy (i .e., involving the public in the decision making process) earned of a

measure of esteem for the administration on the part of the public. It, however set a

precedent of mass public involvement aim ed at decision making which in the

circumstances, simply could not be sustained, When as was inevitable, the

government began to take major decision s, either without prior public debate or in

apparent defiance of p ublic o pinion, opposition to the se policies and programmes

mattered. This was especially so as the policies were not only decidedly and

necessarily harsh their implementation, particularly left a great deal to be desired in

the ‘‘Nigeria’s Political and Econo mic Agenda” the African Economy, (Olukoshi,

1990).

Another source of opposition was the widely shared perception that the understanding

which the government has persistently demanded of the people appeared not to be

equitably distribute d. It was perceived by the general public that some concerted

effort was made to firm the lifestyles of those who served in government shoddy

policy implementation, combined with outright favouritisms, gave the impression that

the friend of those in power were somehow immune to the prevailing winds of belt –

tightening segments of the population including the press, academia, labour , lawyers

a stately increasing nu mber of” human right bodies and other public citizens. It also

led to request wage dispute indu strial actions and occasional acts of civil

disobedience.

No doubt, the administration recorded fair achievement, in implementing certain

aspects of its structural adjustment programme (SAP) succes sfully; it also established

a nu mber of Economic Developmen t Agencies such as the Directorate For Food,

Road and Rural Infrastructure (to Shift the focus of development to rural developers)

a National Directorates of Employment and encourage self employment and

creativity and thus, shift the burden of job creation from government to the public and

the Raw Materials Research and Development Council (to reduce import dependence

and encourage the use of local source raid materials by industries). Unfortunately,

the achievements of these initiates were severely un dermined by the administration

annulment of 12Th June, 1993 Presidential Election, an action, which provoke d wide

spread civil disobedient, sever e disruption of economic activities, especially in the

strategic petroleum industry and the imposition of a range of sanction s by the

Western Industrialized countries, (Anyanwu, 1993).

The regime of General Sani Abacha, from November 1993 to June 1998 significantly

aggravated the problems of the nation’s political economy. While the regime at

inception declared its c ommitment to divided deregulation of the Nigeria economy,

physical discipline and the encouragement of “home grown” development efforts, its

record in reality was far cry from those lofty ideals. By the time General Abacha

died on June 8, 1998, the nation had progressed further down the road to ruin. Vital

economic infrastructure, s uch as the petroleum refineries were in serious disrepairs,

compelling the nation to import refined petroleum products for local consumption

from abroad at the international determined prices . This created an unprecedented

leverage to public corruption in the oil and gas sector.

At the assumption of General Abdul salami Abubakar in office as Head of State, his

major challenge was to manage the short political transition programme than

sanitizing the economy and repositioning it on the path of long -time growth and

development.

The most glaring evidence of the problems of governa nce framework in the country’s

oil and g as industry for the ordinar y Nigerian remained with the provisioning of

petroleum products. The refineries and the nation’s logistic facilities have remained

epileptic plugging the nation into a dependant cycle.

4.3. STRUCTURAL ADJUSTMENT PROGRAMME AND THE NIGERIAN

OIL INDUSTRY

Over the years, the objectives of Monetary Policy have remained the attainment of

internal and external balance. However, emphasis on techniques/instruments to

achieve those objectives changed over the years. These have been two major phases

in the pursuit of monetary policy, namely, before 1986 and since 1986,1990s and

2000s. The first phase placed emphasis on direct Monetary Controls, the second

relies on Market Mechanism and the third reform was a Re -capitalization of the

Financial Institutions about the tune of 25billion Naira, (CBN, 2001).

The structural Adjustment programme (SAP) was one of Babangida regime economic

reforms program me adopted in July 1986 against the crash in the international oil

market and the resultant deteriorating economic conditio ns in the country. The

monetary policy (SAP) was designed to achieve fiscal balance and balance of

payment viability by altering and restructuring the production and consumption

patterns of the economy, eliminating price distortions, reducing the heavy

dependence on crude oil exports and consumer goods imports, enhancing the non -oil

export base and achieving sustainable growth. Other aims were to rationalise the role

of the public sector and accelerate the growth potentials of the private sector,

(Olukoshi, 1990)

The main strate gies of the programme were the deregulation of external trade and

payments a rrangements, the adoption of a Market -determined Exchange Rate for

Naira, substantial reduction in Complex Price and Administrative Controls and more

reliance on Market Forces as a major determinant of economic activity.

The objectives of monetary policy since 1986 have remained the same as in the

earlier period in the stimulation of output and employment, and the promotion of

domestic and external stability. I n line with the general philosophy of economic

management under SAP, Monetary Policy was aimed at inducing the emergence of a

Market-based Framework in the Open Market Operations (OMO). This is

complimented by reserve requirements and discount window opera tions. The

adoption of a market based framework such as OMO in an economy that had been

under direct control of government could not yield the expected objectives due to

ineffective policy implementation. Thus, given required substantial improvement in

the Macroeconomic, legal and regulatory environment upon which deregulation of

the Petroleum Downstream Subsector was anchored in the millennium year of 2000s,

(CBN, 2003).

In order to improve the macroeconomic stability, efforts were directed at the

management of excess liquidity; thus, a number of measures were introduced to

reduce liquidity in the system. These included the reduction in the medium ceiling on

credit growth allowed for Banks;

The recall of the special deposits requirements against outstanding external payment

arrears to CBN from banks, abolition of the use of foreign guarantees/currency

deposits as collaterals for Naira loans and withdrawals of public sector deposits from

banks to CBN. In addition, effective from August 1990, the use of stabilization

securities for purposes of reducing the bulging size of excess liquidity in banks was

re-introduced. Commercial banks cash reserves requirements were increased i n 1989,

1990, 1992, 1996, 1998, 1999, 2000 and 2004. The rising level of fiscal deficits was

identified as a major source of macroeconomic instability. Consequently, government

agreed not only to reduce the size of its deficits but also to synchronize fisc al and

monetary policies. But this was by inducing efficiency and encouraging a good

measure of flexibility in banks credit operations, the regulatory environment was

improved, hence, the sector specific credit allocation targets were compressed into

four sectors in 1986, all mandatory credit allocation mechanism were abolished. The

Commercial and Merchant Banks were subjec t to equal treatment since their

operations were found to produce similar effects on the monetary process. Areas of

perceived disadvantages to Merchant Banks were harmonized in line with the need to

create an enabling environment for their operations, (see table 4).

Table 4: HOLDING OF BANK DEVELOPMENT STOCK (N MILLION)

E 44:

Source: CBN Statistical Bulleting Volume 13. December 2002.

Column1 Column2 Column3 Column4 Column5

YEAR CENTRAL COMMERCIAL MERCHANT INDIVIDUALS INSURANCE

QUARTER BANK BANKS BANKS COMPANIES

1976 451.9 142.1 1.8 38.7

1977 216.3 243.4 6.6 1.6 57.3

1978 826.6 143.5 0.5 1.7 69.3

1979 1410.8 272.4 0.5 2.2 75

1980 1381.3 524.8 1.5 2.4 82.4

1981 1529.1 361.9 1.5 4.8 103.7

1982 1658.6 328.8 1.9 3.6 99.4

1983 1768.6 301.6 3.3 5.2 104.4

1984 1536.6 272.1 1.1 5.2 100.9

1985 1613.4 395.7 33 8 152.5

1986 1618.3 545.7 11.7 10.5 190.4

1987 1550.3 537.2 5.1 44.6 194.4

1988 1450.5 404.9 13.6 8.3 216.8

1989 1484.9 39.5 6.1 8 228.1

1990 1497.8 156.8 6.7 6.9 157.6

1991 807.9 33.5 6.4 6.7 163.2

1992 121.6 29.5 3.6 6.1 152.8

1993 1506.2 156 5.9 1119.3

1994 1207.5 5.2 10.6

1995 918.1 14.7 0 4.5 75.6

1996 789 471.1 0 5.1 101.8

1997 1193.3 14 157.8 4.2 75

1998 494.4 13 0 4.4 74.2

1999 671.6 4 0 3.8 109.6

2000 251.3 0 0 58 1460

Q1 2001 251.3 4 0 58 79.9

Q2 251.3 0 0 58 1460

Q3 251.3 4 0 58 79.9

Q4 251.3 0 0 58 1460

Q1 2002 600.3 2269.5 0 63 1473

Q2 600.3 2269.5 0 63 1473

Q3 600.3 2269.5 0 63 1473

Q4 600.3 2269.5 0 63 1473

Fig. 4.3.1. HOLDING OF BANK DEVELOPMENT STOCK (N MILLION).

Note:

Source: CBN Statistical Bulleting Volume 13. December 2002

Source: CBN, Statistical Bulleting Volume 13, 2002

Note:

i. Consolidation of development stocks figures available from 1976 -2002. Foreign

holdings of Development stocks are negligible. Also, Merchant Bank ceased after

adoption of Universal Monetary Policy, practice 2001.

ii. Executive N20 billion Treasury Bonds issued in March 1999. In recognition of

the fact that well -capitalised banks would strengthen the banking system for

effective Monetary Management, the Monetary Authority increased the minimum

paid up capital of 1990 to 50 and 40 million from 20 and 12 million, respectively.

Distressed banks whose capital fell below existing requirement were expected to

comply by 31 st March 1997 or face liquidation. Twenty -six of such banks

comprising 13 each of Commercial and Merchant Banks were liquidated in

January 1998. Minimum paid up of Mercha nt and Commercial Banks was raised

to a uniform level of 500 million with effect from 1 st January 1997, and by

December1998, All exist ing Banks were to recapitalise. The CBN brought into

force the Risk Weighted Measure of Capital adequacy recommended by the Basic

committee of the Bank for International settlements in 1990. Before then, capital

adequacy was measured by ratio of adjusted c apital to total loans and advances

outstanding. The CBN in 1990 introduced a set of prudential guidelines for

licensed Banks, which were complimentary to both the Capital Adequacy

Requirement and statement of Standard Accounting Practices. The prudential

guidelines among others, spelt out criteria to be employed by Banks in order to

promote stable banking system. In addition, the Banks handle the problems of

distressed and illiquid Banks. The CBN encourages mergers and acquisitions. In

an effort to improve the operations of the money market, an auction -base market

for treasury instruments were made bearer bills to enhance transferability and

promote secondary trading.

Furthermore, by Mid -1992, the major hurdle to the introduction OMO remained

the continued i mposition of credit ceiling on individual Banks that met CBN

specified criteria on selective basis in respect of statutory minimum paid -up

capital, capital adequacy ratio, cash reserve and liquidity ratio requirements,

prudent guidelines, sartorial credit allocation and sound management. Meanwhile,

the use of stabilisation securities for mopping excess reserves in banks was

intensified and three discount houses opened their doors for business transaction

from March 1993. A fourth discount house commenced op eration in 1995 and the

fifth one in 1996. On the 30 thof January 1993, the CBN commenced OMO in

treasury securities with banks through discount houses on a weekly basis. OMO

has remained a major tool of monetary policy in Nigeria with its effective use in

moderating the system liquidity, (CBN, 2002).

In the bid to redirect, refocus and strengthen the economy, the Obasanjo’s

economic reform policy, saddled by the former Governor of CBN, Charles

Soludo, and the recapitalization to Commercial Banks to the tone of N25 billion

naira in 2004 and 2005 respectively, brought to bear, the need to reappraise the

Nigerian economy.

4.4. THE COLLAPSE OF NIGERIAN OIL ECONOMY, 1980-1995

The Nigerian economic witnessed four National Development Plans between 1962

and 1985, designed to enhance the economic performance and the well -being of its

citizenry. The development plans were for the period, 1962 -1974, 1975 -1980 and

1981-1985 for the first second, third and fourth, respectively. There was no additional

development plans until 1999 when former President Olusegun Obasanjo’s regime

decided to reposition the public sectors.

Nigeria is a major producer of petroleum p roduction accounting for about 30 percent

of gross domestic product (G DP), 90 percent of foreign exchange receipts and about

70 percent of government revenues. There is also vast Natural Gas which provides

about one -fifth of the world’s entire primary energy requirement. Prior to the oil

boom in the 1970s, Nigeria depended largely on primary commodity experts , such as

cocoa, palm oil, rubber, cotton and groundnut for its national income. The country at

that time was self-sufficient in food production and even a net exporter of agricultural

produce. In addition, available statistics showed that approximately 60 percent of the

labour force earned their Livelihood from farming.

Between the periods of 1970-1985, there was a significant expansion in the socio –

economic infrastructures of the country even though they were and continued to be

far from adequate in both quantitative and qualitative terms. But d ue to the oil

contribution the nation’s Gross Domestic Products ( GDP) and National Income (NI),

educational infrastructure at various levels were vastly expanded and so was health

services. The transportation and communication network were also expanded and so

were Power, Public-Water supply and Housing. The Financial Sector was not left out,

as it witnessed great expansion as well as increased sophistication . There were at the

end of 1985 1,297 Commercial Bank compared to 302 in 1970. This growth largely

attributed to the outcome of Rural Banking Programme introduced within the

aforementioned years. In 1977, in addition to the existing commercial banks, 126

Merchant Banks and 4 Development Banks, two of which merged in the 1970s were

established. The Capital Bank also expanded considerably in terms of number of

stocks quoted and traded as well as the number of forms registered to deal on the

exchange. Regulation and development of the market was f urthermore enhanced by

the setting up Nigerian Securities and Exchange Commission in 1978, (CBN, 2001).

Suffice to note, that despite the expansion of various infrastructures and institutional

developments, the economy witnessed poor performance, especiall y in 1978. While

real GDP grew by an average of 7.3 percent per year in the period of 1970 to 1977,

the performance from 1970 to1985 showed a decline of an average of 2.2 percent.

Thus, the declining trend ob served in domestic output in 1980, continued in 1984,

following the adverse developments in the international oil market in the early 1980s,

which resulted in a sharp fall in oil prices. Consequently, Nigeria’s export revenue

and budgetary receipts dropped significantly, as public spending did not slow down

proportionately during this period. This led to a build-up of large fiscal and external

deficits. In the bid to finance the domest ic deficits, Government decided to borrow

heavily from the Central Bank, while the financing of foreign deficit led to ma ssive

foreign borrowing and the depleting of the external reserves.

The gradual decline of the foreign exchange led to accumulation of huge trade

arrears. The bandwagon effect was the stagnation of the non-oil sector of the country

while the accrued oil revenue was not sufficient enough to stimulate the desired

growth levels and sustainable economic development.

Efforts to tackle this economic scourge as well as reduc ing the country’s financial

imbalance, led to the rounds of budget –tightening, such as Austerity Measure in the

early 1980s and later the Babangida’s regime Structural Adjustment Program (SAP)

in mid 1980s that ran through early 1990s (Adedipe, 2004).

In 1981-1985 Nigerian witnessed serious economic downturn and stringent monetary

and fiscal measures were ineffective in addressing the economic problems. The

adoption of structural adjustment program me (SAP), initially for two years (July

1986-June1988), wa s the major reaction to the dwindling oil resources,

macroeconomic policy distortions and the increasing need to diversify the production

base of the economy. The economy also witnessed a number of policy reversals

between 1988 and 1989 in an attempt to cu shion the adverse effects of the belt –

tightening measures implemented in 1986 and 1987 respectively. Consequently, some

of the gains of economic adj ustment in those two years gradually eroded its

objectives.

Several policy changes also took place between 1 986 and early 1980s, designed to

restructure and diversify the productive base of the economy in o rder to increase

efficiency and redu ce dependence on the oil sector. There was the need to achieve

fiscal a nd balance of payment viability that would lay the basis f or sustained

economic growth and to improve the efficiency of public sector investments and to

concentrate g overnment efforts on increasing the growth potential of the private

sector. These policy reforms were in the areas of exchan ge rate, foreign trade policy,

banking/financial Sector reforms, as well as commercialisation and privatisation of

government owned companies and parastatals. The outcome of the implementation of

these reforms indicated considerable improvements in the performance of the

Nigerian economy. For i nstance between 1987 -1992, the m anufacturing sector,

agricultural sector and oil Sectors experienced positive growth with an average GDP

growth rate of about 5 percent per annum. However, the relative shares of the three

Sectors show much variation over the years. There was also substantial growth in the

number of non -banks financial institutions, especially incurrence companie s, while

the state-owned refineries continued to experience sharp decline in product output as

a result of capacity utilisation of our refineries, there were salient features responsible

for this inefficiency. These are summarised as follows:

i. Outdated legal framework: the legal and governance structures that have

been designed since the 1970s cannot adequately cater for the requi rements of

contemporary oil and g as industry. For example, though amende d in many

instances, the Petroleum Act (1969) remains a forty year old document that

was designed for the industry a t its infancy. Similarly, the NNPC Act (1977)

despite the various amendments, it’s still an old fashion piece of legislation

against global standard/practices.

ii. Faulty Institutional Structure: the above also applies to virtually all the

institution of the industry. The Ministry of Petroleum (though currently

integrated into lager Ministry of Energy) remains essentially a Civil Service

outfit that is ill -equipped to conceive and formulate the require policies for

such a complex and sophisticated industry. Th e regulatory body, the

Department of Petroleum Resources (DPR) is, by and large, similarly

constrained being a body tucked away within the Ministry.

iii. Absence of Strict Commercial Orientation in Business Process: The

National Oil Company, the Nigerian Nation al Petroleum Corporation (NNPC),

in particular, has been made to operate as a typical Nigerian government

agency that operate at huge amorphous cost centre with little or no sensitivity

to the bottom-line therefore out of tune with contemporary business realities.

iv. Limited Linkages to the Larger Economy: the industry has remained an

enclave with little or no linkages to the larger econ omy (both forward and

backward), (Olukoshi, 1988).

The NNPC has gro wn to become such a big monopolistic leading role in the o il and

gas industry; which became a source of worry to the g overnment and the entire

citizenry because of its perceived level of inefficiency. Access to petroleum products

can no longer be taken for granted, hence, government continuous involvement in the

regulating of the downstream activities can no longer be sustained, (Obaseki, 1996).

It was in the bid to liberalise the downstream subsector that the Federal Government

inaugurated a special committee on the Review of Petroleum, Pr oducts Supply and

Distribution in August 2000 with terms of reference to review the entire spectrum of

the do wnstream sector of the industry and subsequently the liberalization of the

downstream subsector. The highlights of the Committee’s recommendations were the

deregulation of the downstream subsector, unbundling of existing logistic facilities

across the country, ensure availability of petroleum products, and the open access

regime. This metamorphosed into Petroleum Products Pricing Regulatory Committee

(PPPRA), which later metamorphosed into the Petroleum Products Pricing

Regulatory Agency (PPPRA) in June of 2003, (RSCRPSD, 2000).

4.5. PETROLEUM PRODUCTS PRICES AND SUBSIDIES IN NIGERIA.

Petroleum product subsidies have increased in recent years . Many countries did not

fully pass through the sharp increases in international petroleum product prices that

occurred in 2007 and early 2008, resulting in a marked increase in subsidies. After

declining along with oil prices during the second half of 2008, subsidies have again

started to rise, renewing concerns about the fiscal costs. These concerns have been

reinforced by the need in many countries to formulate an exit strategy from the recent

crisis-related accumulation of public debt. The international community has also

targeted the reform of fossil fuel subsidies as part of efforts to confront global

warming, with the September 2009 G -20 Pittsburgh communiqué calling for a phase-

out of these subsidies, (Adeoye, 2010).

The prices of petroleum products in Nigeria have been a source of contention and

controversy. This study proposes to clarify the actual total cost by adding the costs of

all components in retail supply of Premium Motor Spirit (PMS aka Petrol or

Gasoline) the most widely demanded and utilized petroleum product. The cost

components are exploring , developing, producing, refining, distributing and

marketing. The amount of subsidy on the retail price is then determined by the

difference between the actual cost and the retail price.

The method adopted for this cost determination is similar to that used by the

American Petroleum Institute (API) for the analysis of t he actual total cost of

petroleum (PMS) in Nigeria . It splits th e retail cost into the major components: cost

of crude oil, the cost of refining and marketing and the sum of all taxes. This method

is simple and accurate.

The most accurate industry data has been obtained from and confirmed independently

for this effort by industry experts. The draft paper was also reviewed and endorsed by

several other experts. The data and analysis herein are as at October, 2005. Exchange

rate applied is N130/USD.

4.5.1. Component Costs

Crude oil is first discovered (explored), developed (Field Development) and produced

(Production Operations). It is then refined i nto petroleum products, distributed to the

end-users. The costs of exploration, field development, production operations,

refining, distribution and Marketing (Retail sales) are identified herein. The sum of

all product cost components is the actual cost of the product.

4.5.2. Exploration Costs

Exploration costs typically include seismic acquisition and interpretation costs.

Exploratory well costs can be included in development costs since the exploratory

well can be easily converted to a development well. 3D Seismic acquisition costs

vary based on contractor, coverage, terrain, time, season, water depth, methods,

commercial terms, special considerations, etc. Typical costs range from 20 – 70,000

USD/KM2. Interpretation costs range typically from 2 -8,000 USD/KM2. We will use

50,000 USD/KM2 as estimated cost of 3D seismic acquisition and interpretation. For

a 10 KM 2 field with 20 Million barrels recovery; exploration costs can be estimated

to be about: – 0.025 USD/Bbl. This is equivalent to, 0.02 N/Litre, (NAPE, 2005).

4.5.3. Development Costs

Opportunity development costs depend on field location, size, development

philosophy and concept. Development cost will include capital costs of field facilities

design, procurement, transportation, installation and commissioning. Cost of wells

and pipelines to existing terminals are also included. It will typically vary from 2 -5

USD/Bbl.

At the NAPE (National Association of Petroleum Explorationists) annual conference

in 2005, an offshore development cost was indicated as 5 USD/Bbl. However,

historical data for completed projects offshore are closer to 3 USD/Bbl.

Onshore development costs are also significantly lower than offshore costs. To

averagely represent the entire JV operational environment scenarios (offsho re and

onshore) this paper captures development cost as: – 4 USD/Bbl. This is equivalent to,

3.27 N/Litre.

4.5.4. Operational Costs

Current production operation costs of major oil companies surveyed indicated a range

of 1.5 -4 USD/Bbl. This includes all overhead costs across rele vant functions. This

captures OPEX as: – 3.0 USD/Bbl which is equivalent to, 2.45 N/Litre.

Therefore, actual crude oil production cost to the Nigerian JV can then be estimated

as: (0.025 + 4.0 + 3.0) USD/Bbl = 7.025 USD/Bbl.

(0.02 + 3.27 + 2.45) N/Litre = 5.74 N/Litre.

Previous government (NNPC) estimates (1994 – ’98) yielded 5 USD/Bbl. The

difference in these estimates can be attributed to rising oil industry service costs due

to international market dynamics, inflation and or to estimate basis differences.

4.5.5. Refining Costs for Petroleum Products

Initial installed refining capacity of the four refineries in Nigeria is estimated at about

445,000 Barrels per day (BPD). The capacity breaks down of each of the refineris are

as follows:

• Old Port Harcourt Refinery – 60,000 BPD
• New Port Harcourt Refinery – 150,000 BPD
• Warri Refinery – 125,000 BPD (Upgraded from 100)
• Kaduna Refinery – 110,000 BPD (Two trains, 60+50)

Source: RSPCRPSD, 2000.

It is indeed saddened that the current capacity utilizations of the four local refineries

in the country as at 2010 are between 15,000 -20,000 bpd, ( Thisday Newspaper,

August 2005).

To estimate refining costs, we can rely on the international industry data from similar

refineries. Contemporary refining technology is of the fluid catalytic cracking

(FCC) process. This process requires fluidizing the solid catalyst and re -circulating it

continuously from the reaction section of the cracker to the catalyst regeneration

section and back to the reaction section.

The American Petro leum Institute (API) estimates gross refining and

distribution/marketing costs and profits at $1.00 per g allon in October 2005. Using a

50/50 split as established by historical U.S. cost trends, it can be clearly concluded

that refining costs and Profits, account for $0.50 per g allon. This value includes the

profits of the refineries.

The estimate can be used for this determination since it is from mostly FCC process

based refineries just as most N igerian refineries. Actual refining costs may be lower

in Nigeria since labour costs are significantly lower in Nigeria. $0.50 per gallon

translates to $21/ Bbl that is, refining costs of $21/Bbl will give us its equivalent of

17.17 N/Litre. (API, 2005).

4.5.6. Distribution Margin

Distribution margins in Nigeria are established by regulation. This is the cost margin

allotted to road trucking of petroleum product from the depots to the retail outlets. As

at October 2005, it was, 2.42 N/Litre.

4.5.7. Marketing Margins

Marketing margins are also established by regulation. This is the cost margin s

allowed for oil marketing companies input alongside at retail outlets pump price. In

2005, marketers’ margin was 5.87 N/Litre.

4.5.8. Total Cost

The total cost can then be determined as the summation of all relevant cost

components previously estimated viz., exploration, development, production

operations, refining, distribution and marketing:

Total Cost = (6.04 + 17.17 + 2.42 + 5.87) = 31.50 N/Litre

Therefore, we can conclude that the Average cost of the Petroleum products

dispensed at retail stations in Nigeria is 31.50 N/Litre.

4.5.9. Effect/Politics of oil Subsidy on the Economy Nigeria

The choice of oil tied to its status as the physical basis of Nigeria state accounting for

over 80 percent of Federal Government revenue and 90 percent of foreign earnings.

Beyond this, there has being class struggles over control of assets and distributio n of

various factions of the ruli ng class with revenue accrued largely implementing the

allocation of oil revenues. Oil , therefore, is central to the politics of inter –

governmental relations in Nigeria, the economic crisis and the transcendence of

destabilizing tendencies within the system, the politics of oil determines the political

economy of fiscal federalism, confronts the power relation that underlines the

authoritative allocation of resources among the various tiers of the Nigerian

federation. By the same logic, it deals with the outcomes, the locative process and the

condition under which it breeds crises.

Suffice to note that the Nigerian state served the interest of global accumulation

periphery through the local extraction and transfer of resource s to the Metropolis as

such; it exculpated local differences and spawned un -even development through

vertical channel of extraction, accumulation and transfer of wealth, (Kunle, 1998).

This situation gave room for regional disparity in the emergence of lo cal elite in the

area of concentration and accumulation of commerce, created cleavages, distrust and

rivalry. This was worsened by decentralized nature of colonial patrimonialism, which

gave elite factions of numerically dominated ethnic groups a head star t in the sharing

of spoils within the colonial state. This situation gave Nigerian federalism a divisive

and regionalized character with ethnicity a ready tool for access to power and

resources, class formation and politics alongside the structural inequities embedded in

the colonial state, the stage was already set for a troubled federating process in

Nigeria.

Nigeria handily fought for the establishment of the OAU in the late seventies,

ECOWAS, and the liberalization of apartheid South Africa in the 1990 . It has also

been observed that crude oil policy is of great virtues in determining a country’s local

and international polity, that is, a country that has a say in international politics must

have a strong economic might, (Jared and Garrett, 1968).

Petroleum Pricing will remain a night -mare until the needful is done concerning the

petroleum downstream subsector of the industry. Hence, we see Price as an economic

incentive, that is, a factor that either lead to equilibrium or disequilibrium of demand

or supply schedules. The supply gap in products that came into resurgence when

Import Price Parity (IPP) cost became more than domestic selling Prices of Petroleum

Products was due to the fact that prevailing Prices then were a little rigid and quite

uncompetitive and above all, it is not at all in tune with the concert of co st recovery.

That government intention to bridge the gap between refining costs and pump price

of petroleum products through (subsidy) P etroleum Support Fund (PSF), has become

a conduit-pipe for massive corruption by the administrating agency.

Had this subsidy been effectively administered in the past there should have been no

gap between cost (either production or import parity) and pump price, hence, the

recent introduction of the Petrol eum Supply Fund (PSF) to be administered by

Petroleum Products Pricing Regulatory Agency (PPPRA) and other Stakeholders in

the industry. As such the Sector would have been a little more competitive for supply;

but due to high import parity, low capacity ut ilisation of the refineries and domestic

prices (fixed by fiat), the only party that can import at these circumstances will

ultimately be the state, (Robert, Kaplan, and Hanson, 1997).

The overwhelming impact of f orex rate and cost of borrowing funds from the banks

on petroleum products prices. Also with an increasing spot price of crude, the local

pump prices of these petroleum products are bound to fluctuate. Import parity relies

on the inter play of the forces of demand and supply to determine the c ost of supply

of the products of the market. The implication is that , Nigerian consumer will have to

be exposed to the competitive fuel supplies and prices in the international market.

Hence, it will be very fair to speak in economic perspective and allow the sector to be

price competitive like the rest of the global-world economy, (Dakouru, 2007).

According to former President of Nigeria, Chief Obasanjo, in his inaugural speech in

1999, he said that he could not make sense out of the justification of abou t N250

billion spent on crude oil quarterly. Instead such money should be used to add value

to other sectors of the economy. He further argued that if the subsidy continues it will

only affect the lives style of few Nigerians at the detriment of the targe ted populaces,

(PPPRA, 2007).

Over the period of 50 year , the Petroleum marketing companies source products

themselves, transported and distributed themselves using their own distribution and

retail outlets, Nigerians paid market determined prices for petroleum products, the

exchange rate were relatively stable in Nigeria and around the world. Prices are fixed

by marketers in agreement with government as required by section 5 (1) of the

Petroleum product decree of 1969. The country was then divided into 26 zones based

on distance from point of supply of products to the point of sale; hence prices were

fixed according to dis tance. The downstream subsector as a catalyst of supply and

distribution of products across the country became an issue from 1 st October 1963

when government introduced uniform pricing of petroleum products with regards to

pricing and subsidy in the long r un. The problem with the implementation of uniform

pricing was that it was more profitable to market petroleum products around the

Seaports and the main supply services such as Refineries, Depots and Jetties, which is

mainly in the southern part of the cou ntry. Monopolistically, the marketing

companies were not willing to expand their facilities to the hinterland since their core

motive is to maximize profit at minimum cost at the expense of the consumer. The

PEF was introduced in 1975 to intervene in the pricing of petroleum products so as to

achieve price uniformity without additional burden on any individual marketing

company. T his was achieved in 1986 with the introduction of SAP and the

devaluation of Naira. The issue of pricing has been perennial, vexi ng and traumatic

accompanied by various public protests and strikes that had devastating effect on the

Nigerian economy. This led to the upward review of Petroleum products price (white

products) in June 2000 PMS from N20 – N30 this increase was justified due to high

market Price of crude oil and the need for higher margins for NNPC to meet

operational capital cost.

However, there was a sharp reaction by NLC resulting in nati onwide industrial

action. In order to curtail this social crisis Government negotiating team was set up to

dialogue with the NLC team. Following the negotiation, the prices of petroleum

products were agreed as follows:

i. PMS was reduced from N30 – N22;

ii. AGO was reduced from N29 – N21;

iii. DPK was reduced from N27 – N17.

Source: (RSPCPPSD el tal).

The inconsistence in the pricing of petroleum products becam e worrisome to the

Obasanjo administration in 1999 as it took a long drive to review the activities of the

downstream sub sector in 1999 and the need for deregulation of the sub sector was

obvious. Since the inception of deregulation as a policy the general economic

activities have triggered towards industrialization as a result of the availability of

energy supply (petr oleum products). The policy has been able to establish parameter

code of conduct for which all operators in the downstream sub sector operate as well

as enforcement of sanction on defaulters. Deregulation has been able to unravel the

arbitrary pricing of petroleum products, identify macro eco nomic factors related to

pricing of petroleum products, and maintain constant surveillance relevant to key

indices of pricing policies. Development of downstream oil sector in Nigeria has been

able to sail and harmonize all economic activities towards the empowerment of small

and medium enterprises, eliminating scarcity, sanitization of the oil industry and

creating enabling environment for investment where investors will conveniently

recoup returns on investment, (RSCRPPSD, 2000).

The removal o f subsidy is beneficial to the Nigerian economy as it enables

government to redirect the accrued windfall to the Federation account for the purpose

of economic development. Implied in the proceeding argument is that no country in

the world willing to devel op will continue to re -deploy the accrued profit for

ostentatious spending. The federal government of Nigeria could not continue to

subsidize the petroleum sector and still be obliged to her social responsibilities.

Beyond this, the hikes in prices were al so mean to curb the large -scale smuggling of

Nigeria relatively cheaper petroleum products to neighbouring countries. Since the

inception of the deregulation of the downstream sector in 1999 there has been a

tremendous evolution in the economy such as dere gulation of the port authority,

development of the agricultural sector, improvement in social infrastructure such as

healthcare, procurement of drugs, maintenance of roads by FEMA, recapitalisation of

the banking sector to the tune of N 25billion, improvem ent in small and medium

scale industries, expansion of skill acquisition, improvement of science and

technology (Nigeria Sat 1), just to mention a few. The removal of subsidy has also

encouraged ‘Open Access’ in the downstream sub sector where there are ma ny

players, both indigenous and foreign. This has given leverage to supply and

distribution of petroleum products across the country. Most importantly, the reform in

the downstream sector has enhanced the Nigerian policy internationally. This implicit

goal of government in the removal of subsidy has replicated the global political

economic system in Nigeria, (PPPRA, 2005).

Furthermore, recent challenges posed by the continued subsidising of petroleum

products will not help matter as the Federal Government h ad querried the rational for

NNPC proposed N1.115 trillion outstanding claims by the State Corporation. The

argument forwarded by NNPC was that:

Since they are responsible for bulk imported fuel consumed in the country, they

have in the past stopped impor tation to protest the non -payment of subsidy.

Besides, subsidy is at the heart of the argument for “appropriate pricing” of

petroleum, a euphemism for price increase, (NNPC, 2009).

At retail outlets in the country, petroleum products sell for N65 per litre, but

marketers are campaigning for a higher price because of the Landing cost. This

situation has prompt ed the Federal Government to set -up independent audit panel to

ascertain such claim of one sector of the economy that almost equate d the national

budget of about N2.5 tri llion which was employed f or subsidy in 2006, (PPPRA,

2007).

4.6. DEREGULATION POLICY IN NIGERIA

Past governments conceived deregulating downstream subsector of the oil and gas

either as “appropriate pricing” or “price adjustment”. Those were mere palliatives

and not the solution to the comatose process of supply and distribution of petroleum

products in the country. By the time this government completely opens the sector for

competition, scarcity will be a thing of the past. The present proposal will allow for

competitive pricing which will break up the monopoly being enjoyed by Nigeria

National Petroleum Corporation (NNPC), government further argued.

At the inception of President Olusegun Obasanjo’s regime in 19 99 and in a bid to

reposition the socio -economic and political structure of the Nigerian economy, he

inaugurated the National Council on Privatization on July 20 th 1999 with the

following words:

As you all are aware, we are not starting privatization/ comm ercialization of

government owned enterprises from the scratch. Previous administrators have

done some work. There is also a pool of knowledge and experience we can

draw from other countries that have successfully privatized their state -owned

enterprises. Where such previous exercises will promote the integrity and

transparency of our privatization exercise, they will be adopted and built upon,

(Obasanjo, 1999).

The first step to be adopted was dispose of government equities quoted on the Lagos

stock exchange namely, in cement and banking, which are relatively easy to evaluate.

In doing so, the absorptive capacity of the market will be closely watched and efforts

would be made to encourage core investors to take preferential allocation.

Another group that w ill be included in the ongoing economic reforms is the core

group investors. These are experienced groups w ho possess the capabilities for

adding value to a n enterprise and made it operatively efficiently in the face of

international competition. The core groups must not only possess the technical know-

how in relation to the activities of the enterprise they wish to invest in but also

possess the financial capacity to pay competitive price for the enterprise and increase

their capital base, (National Council on Privatisation,2000).

The Bureau of Public Enterprise (BPE) is accountable to the council for

implementation of the program me under the general policy oversight and other

directions of council. Amidst these, the Council is saddled with the implementation

of the objectives below:

i. To send a clear message to the local and International Community that a new

transport Nigeria is now open for business;

ii. To restructure and rationalize the public sector in order to substantially reduce

the dominance of the unproductive government investment in the sector;

iii. To change the orientation of all public enterprise engaged in economic

activities towards a new horizon of performance improvement ,viability and

overall efficiency;

iv. To raise funds for financing socially – oriented program such areas as poverty

eradication, health, education, infrastructure and better standard of the

economy;

v. To ensure positive returns on public sector investments in commercialized

enterprises, through more efficient private sector- oriented management;

vi. To check the present absolute dependence on the treasury for funding by

otherwise commercially oriented Parastatals and so encourage their approach

to the Nigerian and international capital markets to meet their funding needs;

vii. To initiate the process of gradual cession to the private sector of public

enterprises which are better operated by the private sector;

viii. To create jobs, acquire new knowledge, skill and technology, expose Nigeria to

international competition, (National Council on Privatisation, 2000).

In the light of the aforementioned emerged the deregulatory policy of the downstream

petroleum subsector in Nigeria. Various schools of thought define deregulation.

Deregulation as a concept, according to Lukman (2002), means allowing harmonised

competition that is a level playing ground opportunity to refine or import petroleum

products for use in the country in -so-far-as the products so refined imported meet

quality specifications. It involves the removal of entry barriers into the supply and

distribution of petroleum products. He further noted that, in the process of

implementing the policy, the threat of external players, imports and substitute

products become real and the strategy of the local players ( stakeholders) may be

found to be wanting as their level and involvement in the new competitive

environment is severely tested at the import price parity (IPP) market, as well as

contending with indigenous independent marketers, while new fleet -footed playe rs

emerged.

Akinlaja (2001) posits a radical view, that deregulation means the removal of

restrictions on the establishment and operation of p etroleum logistics as it will give

marketers the enabling environment for marketers to purchase Crude Oil from l ocal

and international sources for processing in the refineries; a nd allows Government to

hand – off fixing of prices of Petroleum Products and Player in the industry. At the

heart of deregulation of the petroleum downstream subsector is the controversy ov er

appropriate pricing of petroleum products in Nigeria. The question is that should the

prices of petroleum products reflect their full cost or contain subsidies, especially

against the abuses and sharp in the products so urcing, supply and distribution of

petroleum products, (Akinlaja, cited in Oluwole, 2003).

From the view point of stakeholders (marketers) in the oil and gas sector,

deregulation will boost the strength of the economy, as there will be regional and

trans-boarder exchange of currencies, wh ich will accrue more funds to the federation

account sharing among the three tiers of government for developmental purposes, it

will trigger multi-economic activities in both the oil and gas industry, manufacturing

industries, agro -allied sector, promotes small and medium scale enterpris es and a

general economy growth.

According to Daukoru (2003):

We never seem to get it right. Something always seems to be missing between

the Government policies, implementation and public expectation (or public

perception of constitute the common good). On the other hand policy and its

implementation may be either too far or short in scope, lopsided or mistimed.

On the other hand, public expectations may be unrealistic, utopian and

misguided, or misinformed. As a result we stagger from one confrontation to

the next between policy maker, regulators, actors and customers.

In the lexicon of downstream, between Government, Major and Independent

Marketers, Dealers, Distributors, Unions and Consumers, most time even

internally within these sets of players. For instance, between the Department of

Petroleum Resources (DPR) Staff and Government; National Association of

Road Transport Owners ( NARTO) & National Union of Petroleum & Natural

Gas Workers (NUPENG), serving as umbrella for drivers; or Nigerian Labour

Congress (NLC); and the Government. I am yet to mention marketers lobbying

Nigerian National Petroleum Corporation (NNPC) for better margins.

(Daukoru, cited in NNPC,2007).

He defined deregulation as global strategy for enhancing productivity and economic

growth. The euphoria of deregulation has touched several countries across the globe.

In most Western industrial Countries, the deregulation of economic activities –

particularly the removal of political and economic barriers to the market, the

decontrol of prices and the liberalization of investment decisions has become an

important component of domestic public policy.

The policy of deregulation as viewed by NLC & PENGASSAN (20 01), principally

involves the liberalisation of the logistic and pricing of products; liberalisation has

been identified as essential policy instrument for vibrant economy, hence, they

encourage the government to liberalise the downstream subsector with ut most

sincerity and transparency in order to ensure that the benefits accruing therefore are

felt in the real and social sector of the economy with emphases on capacity

utilisation, improvement in social infrastructure via health, education and public

transportation et cetera.

Deregulation ensures tha t the liberty of the individual as guaranteed by every

democratic constitution be exercised in the market place. Moreover, deregulation

improves the functioning of marketers and strengthens competitive forces with a view

toward enhancing dynamic efficiency and economic welfare. At stake is the

elimination of serious micro -economic vapidities stemming from inappropriate

intervention by government or self -regulating bodies. Consequently deregulation

stands as pill ars of supply -side policies that came into increasing use in the 1980’s

after widespread disillusionment with the capability of Keynesian macroeconomic

policies both to tackle the problem of productivity slow down and high

unemployment, and to secure inter national competitiveness of the domestic economy

in the context of a progressive globalization of markets and production, (Co mrade

Oshiomohle, cited in Areme, 2000).

According to Button (2005):

Recent years have witnessed a whole range of measures aimed at reducing

government intervention in oil and gas markets. Major elements of this

international movement have been significant shifts of responsibility for

provision from the public to the private sector. While many aspects of

deregulation of the petroleum downstream subsector have been examined, and

matters of equity and traditional economic efficiency have been explored,

rather less attention has been paid to ownership matters. Further, the analysis

which has been conducted has focused almost exclusively o n matters relating

to the internal market changes which are brought about. Equally, with respect

to deregulation there have been studies of internal economic efficiency and

distribution impacts but wider safety and market volatility matters have

received less attention. This paper looks at the impacts that privatization and

deregulation of the commercial sector of the oil and gas may both directly and

indirectly (in terms of influencing industrial production) have on the economy.

The most radical deregulation policy was implemented in the United States in the late

1970’s and early 1980’s Derthick and Quirl (1985), Niskanen (1989). In Europe,

Great Britain it was known to be the front runner, combining the deregulation of

markets with the privatization of Public companies and Germany only recently joined

the deregulation movement in late 90’s.

In the last four decade s, several developing countries including India, South Africa,

Angola, Egypt, Trin idad and Tobago, Iran and Nigeria, have also joined the

deregulation movement aimed at expanding private sector participation in economic

activities and by implication, reducing government participation which may appear

justifiable considering the enormous waste and inefficiency associated with

government economic ac tivities. However, some of the countries notably Hungary,

Poland and Venezuela to some extent, Nigeria adopted this rad cial approach of

gradual deregulation, while others such as Czech Republic and Russia adopted that of

rapid deregulation, Furthermore, se veral Asian countries have also substantially

deregulated their economies while a few African countries have done likewise as

earlier enumerated.

From the above scenario, deregulation of the petroleum downstream sector can

simply be put to be a process by which government remove s selected regulations on

oil business in order to stimulate efficiency in market operations. The policy is that,

little regulations will lead to raise level of competitiveness, therefore higher yield of

petroleum products, leading t o efficiency and moderate prices volatility of products

over all.

Deregulatory policy when properly implemented will encourage more people to get

involved in the marketing and distribution of petroleum products. For example,

NNPC in erecting merger petrol stations across the country and Shell is re -entering

the petroleum products distribution industry. In their opinion, the deregulation of

petroleum downstream sector of the industry in Nigeria should be implemen ted in

phases, so to allow the s tate-owned monopolies compete efficiently with other

stakeholders in the sector.

Since the early days of the on -going transition from military dictatorship to

reasonable democracy, the Federal Government set up a team, led by a technocrat in

the Presidency, Funsho Kupolokun, ( appointed as the Group Managing Director of

the state -owned national oil company, NNPC), to explain certain key issues of

liberalization, and to counter the arguments of those opposed to the notion and

concept of deregulation of the downstream sec tor of Nigeria’s petroleum industry,

(Braide, 1997).

Reactions to the government -sponsored enlightenment campaign range from outright

objection to cynical disinterest through cautious empathy and dogmatic assertion of

the inevitability of deregulation of the downstream petroleum industry. Here, we will

consider and make realistic assessments of probable scenarios of deregulation in the

downstream sector of the Nigerian petroleum industry, against the general

background of global trends in deregulation and restructuring in the petroleum

industry, coupled with the current level of public awareness, and government’s

posturing on the issue of deregulation in Nigeria. Five (5) likely scenarios, or

probable modes of implementation of the deregula tion process in Nigeria, are

summarized as follows:

i. Supply side deregulation;

ii. Demand side deregulation;

iii. Complete deregulation;

iv. Phased deregulation, starting from the upstream sector;

v. Retention of the status quo, (Ajakaiye, 2001).

The time frame of implementation of workable petroleum industry reforms, the

potential effects on both Major and Independent petroleum products marketers, the

role of both the currently dysfunctional state-owned refineries and prospective private

refineries, salient factors of acquisition of the existing state -owned facilities, and the

criteria for identifying suitable players in a deregulated downstream sector of the

Nigerian petroleum industry, are all crucial to the success of the deregulation process,

and are therefore considered here. Below are highlights of the five (5) likely policies

of deregulation in Nigeria:

a. Deregulation based on supply side

The inherent assumptions of this policy are that:

i. The Federal Government is sensitive to the inadequacies of the existing s tate-

owned petroleum refining, and refined products supply and distribution

systems in Nigeria and desires to maximize supply sources for the refined

products market in the country.

ii. Federal Government monopoly of refining, pipeline operations, and primary

distribution from the state -owned storage depots would be completely

unbundled, and abolished.

iii. Local and foreign private investors would be willing to take over the state –

owned facilities (refineries, depots, and pipeline systems) in their current state

of dilapidation, disrepair and poor performance, and operate them efficiently

and profitably thereafter.

iv. Private refineries would procure crude oil at competitive rates, and sell their

refined products profitably, and at international prices, both in Nige ria and

beyond, as desired by the refiner.

v. Private importers would procure refined petroleum products and sell such

products at deregulated prices, in line with prevailing market prices.

vi. Barriers to new entrants into private refining, pipelines and depot operations

would be eliminated, (Ajakaiye, et-al).

Hypothetically, with anti -monopoly policies (which are not yet in place in Nigeria),

and with competition among private refiners, the demand for petroleum products

could be met and sustained. However, bec ause of the low buying power of the

consumers in the Nigerian market, the demand for petroleum products, sold at

international market rates, would be reduced significantly.

Profitability of business at the retail end of the downstream sector would be dict ated

mainly by economies of scale: only the big players in the petroleum products

marketing sub -sector would survive. Consequently, up to 95% of existing

Independent marketers may cease to be in their present form. Alternatively, there

could be mergers among weaker Independent marketers (with between 1 ~ 10 outlets)

to compete with the present top Independent players, on the one hand, and individual

Major marketers, on the other. In short, the market would be segmented into

individual Majors, individual cur rent top Independents, and groups of merged minor

Independent marketers of petroleum products.

Essentially, the federal government holds on tenuously to “fine -tuning” an evidently

inefficient state-owned business that goes through a long drawn out proces s of slow

and progressive extinction. In a sense, the medium to long -term consequences of

Scenario one on KRPC, WRPC and PHRC is that they would decay slowly, and

finally die under government protectionist cover.

The first generation of post -deregulation private refineries in Nigeria would be the

stand-alone type: In this scenario, private refineries would manufacture petroleum

products, and distribute them to targeted segments of the Nigerian market (most

likely, regional) from their loading facilities wi thin the refinery complex. In other

words, there will be no private pipeline operating companies to move refined

products from such private refineries to their markets.

The predominant mode of refined products distribution would be outlet -specific truck

loading, mainly to domestic retail affiliates of the refiner. In short, private Nigerian

refiners would initially secure their market, built around the retail outlets of groups of

Independent marketers, while potential private foreign refiners, if any, woul d

preferably target their distribution at both the Nigerian, and export markets, possibly

through the Majors.

b. Deregulation based on Demand Side

The inherent assumptions of these elites class is that:

i. The federal government, though fully aware of the glari ng inadequacies of the

existing state-owned supply and distribution systems in Nigeria, would prefer

to restructure the decrepit refineries, pipelines and depots, so as to enable them

compete in tandem with the proposed new refineries that would be built, and

managed by private investors.

ii. Federal Government control and coordination of petroleum products

importation would stop.

iii. Private investors would have open access to state -owned facilities like

petroleum reception jetties at Okrika, Effurun, Calabar, Escravos, and Atlas

Cove (Lagos), including the storage tanks at PHRC, WRPC, and KRPC, and at

non-discriminating tariffs, for e xpediting the logistics of importing petroleum

products into Nigeria.

iv. Private products marketing companies would form strategic alliances or

mergers in order to optimize operating costs.

v. Price fixing, “uniform pricing”, and so -called “bridging” subsidies by the

Federal Government would stop.

vi. Barriers to new entrants into wholesale and retail marketing of petroleum

products would be eliminated by law. (Oluleye, 2003).

Clearly, because of the lead -time to effective attainment of improved performance,

and ade quate supply of refined products by the existing state -owned refineries,

coupled with the lead -time necessary to build and operate new private refineries to

complement existing supply sources, the availability of refined products may not be

much different from what obtains currently. Therefore, the market segments (Majors

and Independents) may also alter very marginally.

However, opportunities exist for private importers to complement shortfalls in

product stocks. With this scenario, there may be an upsur ge in private importation of

petroleum products. Recent acquisition of import reception facilities by Independent

marketers indicates a potentially competitive market for both marketer groups:

Majors and Independents. This scenario forces mergers on the ex isting Independent

marketers in order for them to be cost-effective.

The emergence of post -deregulation private refineries in Nigeria would be very

dependent on the policies of the Federal government with respect to the price of

crude oil allowed both private refiners, and the state owned refining companies. With

the current disparity between the open market price of crude oil and that conceded to

the state -owned refineries, it is not likely for private refiners to invest under such

conditions. In this sce nario, the state -owned refineries would remain protected,

probably selling their products at international rates. Though pipeline operations may

still be monopolized by NNPC, very likely, “bridging” and “uniform pricing” could

cease to apply. Potential pri vate Nigerian and foreign refiners would not be attracted

to invest under such policy regimes. Consequently, the only possibility for expansion

of refining capacity would be dependent on new state -owned refineries that may be

added to the existing pool, (Adedipe, 2004).

c. Complete Deregulation of the Downstream Sector.

The inherent assumptions of this policy are that:

i. The Federal Government is conscious of the gross inadequacies of the

downstream sector of the Nigerian petroleum industry. However, government

would restructure all state -owned refineries, pipelines, and storage depots,

prior to their unbundling, and final acquisition by private investors.

ii. The Federal Government desires to maximize supply sources for the refined

products market in Nigeria, including the build -up of a so -called “strategic

nation reserve” of refined petroleum products.

iii. A critical mass of qu alified private Nigerian investors exists that can take over

the state -owned downstream petroleum businesses, now ran by NNPC, and

manage them efficiently and profitably.

iv. Two (2) separate and independent downstream policy formulation and

enforcement agenci es would be established by the Federal Government to

monitor the sector effectively, post de-regulation.

v. Private businesses may import refined petroleum products and sell such

products at competitive prices.

vi. Barriers to new entrants into all segments of the downstream sector would be

eliminated.

vii. Unnecessary (legal and illegal) impediments, including the existing

overbearing procedures for granting licenses to private refiners, and other

potential investors in the downstream sector, must be abolished by la w, with

maximum dispatch.

viii. There must be open access to state -owned monopolistic facilities such as

jetties, storage tanks, and pipelines, through non -discriminatory tariffs to

private operators.

ix. Price fixing in any guise by government must stop, (Gbadamo si, cited in

Oluleye, 2003).

As in phase 2, because of the lead -time to attainment of improved performance and

adequate supply of refined products by the existing state -owned refineries, the

availability of refined products may not be much different from w hat obtains

currently. Therefore, the market segments (Majors and Independents) may only alter

very marginally in the short to medium terms. However, if and whenever full price

deregulation starts to apply, opportunities could emerge for private investors to move

in and compete effectively.

With this phase, there would be an initial inertia in private sector participation, to be

followed by a trickle of private refiners, and operators of existing state -owned

product pipeline networks (if any). With such p rivate refineries, effectively

competing at global pricing and other standards, refineries would be retail outlet –

specific. This scenario forces mergers on the existing Independent marketers in order

for them to be cost -effective. The scenario would also r esult in Major marketer

refiners preferentially directing their distribution to their own outlets. In this scenario,

the supply and primary distribution of refined petroleum products in Nigeria would

very likely be under the control of the Major marketers, ultimately.

d. The “Do Nothing Option Policy”:

The inherent assumptions of this policy posited by this school of thought are that:

i. Deregulation of the Nigerian oil industry is not in the “security, and overall

national interest” of the country, and therefore, not desirable.

ii. Existing inefficient government -owned facilities in the downstream sector can

be satisfactorily upgraded.

iii. In a sense, the “Do Nothing Option” represents the worst -case scenario, and is

also the most probable scenario in Nigeria. In this scenario, the status quo

remains: i.e. “Business unusual, as usual”.

iv. Private players are not, (and will not be) motivated to invest under the

prevailing state -protectionist regulatory framework. The chances of improved

performance in the state -controlled petroleum refining, and refined products

supply and distribution systems, are near-zero, with no meaningful competition

to the existing sick, and severely dilapidated refineries, and p roduct pipeline

infrastructure, (Ajakaiye, 2001).

Predictably, the entire Nigerian petroleum industry becomes progressively moribund,

unattractive to both Nigerian and foreign investors alike, in both the upstream and

downstream sectors, then comes to a grinding halt, and finally collapses.

The role of the Federal Gov ernment, ‘‘vis-à-vis’’ the Nigerian petroleum industry, is

being redefined, little by little. Possibly, state -owned monopolies like NNPC may, in

the end, be dismantled completely. State interventions, such as the Petroleum

Equalization Fund (PEF), price fi xing, uniform pricing, including the so -called

“bridging reimbursements” may, one day, cease to be, and, hopefully, the Nigerian

petroleum products market could be meaningfully reformed and effectively

deregulated ultimately. Maybe, indeed, opening up crud e oil and petroleum products

markets to transparent competition is not easy. Nevertheless, it is central to the

successful implementation of petroleum industry reforms worldwide. This involves

facilitating access to capable importers and exporters of both crude oil, and refined

petroleum products, consequently forcing the local (private or state -owned)

refineries, and products marketing companies to face serious and meaningful

competition, which must be in place, a priori, for the deregulation process to succeed.

Deregulating the downstream sector of the Nigerian petroleum industry requires a

change in pricing policy. Product prices, before tax, must be set in line with economic

border prices. Taxation must not discriminate between local and foreign investo rs.

However, several sub -Saharan, Latin American, Caribbean and Asian countries have

allowed for a short transition phase that ultimately led to full deregulation in the

downstream sector. It is therefore necessary to design a systematic basis for

introducing economic pricing before price deregulation, so as to ensure the continued

meaningful participation of private operators in the business.

Distortions in the prices of petroleum products need to be reviewed. For Nigeria, as

sub-regional integration pro gresses within the ECOWAS sub -region, cross -border

prices will become increasingly harmonized, while the usual excuses, indeed, the

very notion of smuggling of petroleum products within the sub -region will become

progressively meaningless. (Oshiomole, 2001).

4.7. EFFECTS OF DEREGULATION ON LAGOS STATE ECONOMY

Lagos State was created on May 27, 1967 by virtue of State (Creation and

Transitional Provisions) Decree No. 14 of 1967, which restructured Nigeria’s

Federation into 12 States. Prior to this, Lagos Municipality had been administered by

the Federal Government through the Federal Ministry of Lagos Affairs as the

regional authority, while the Lagos City Council (LCC) governed the City of Lagos.

Equally, the metropolitan areas (Colony Province) of Ikeja, Agege, Mushin, Ikorodu,

Epe and Badagry were administered by the Western Region.

The State took off as an administrative entity on April 11, 1968 with Lagos Island

serving the dual role of being the State and Federal Capital. However, with the

creation of the Federal Capital Territory of Abuja in 1976, Lagos Island ceased to be

the capital of the State which was moved to Ikeja. Equally, with the formal relocation

of the seat of the Federal Government to Abuja on 12th December, 1991, Lagos

ceased to be Nigeria’s political capital.

Nevertheless, Lagos remains the nation’s economic and commercial capital.

According to extant political records, “Lagos is to the people of Nigeria, what the

head is to the body of an individual.”

Lagos State is inhabited by the Aworis and Ogus in Ikeja and Badagry Divisions

respectively, with the Ogus being found mainly in Badagry. While the indigenous

population of Lagos are Aworis, there is, nevertheless, an admixture of other pioneer

immigrant settlers collectively call La gosians but more appropriately the Ekos. The

indigenes of Ikorodu and Epe Divisions are mainly the Ijebus with pockets of Eko –

Awori settlers along the coastland and riverine areas. While the State is essentially a

Yoruba speaking environment, it is neverth eless a socio -cultural melting pot

attracting both Nigerians and foreigners alike, (Encyclopaedia, 2005).

The Lagos State is currently witnessing a tremendous socio -economic transformation

as a result of the hall of activities in the downstream petroleum subsector.

Deregulation policy has diversified sectoral growth of the economy through the

optimal process of resources allocation and utilization. A State of a population of 6 -7

million people has manage d the ideas of open regime operation that is being able to

develop an economy that creates opportunity for competition.

Lagosians see deregulation policy as a welcome development in the oil and gas

sector, but, sustaining it and making it to function is quite a different matter all

together. From the foregoi ng, what has being the contributing impact of deregulation

policy in the economy of Lagos.

In Lagos, it is believed that deregulation will bring in healthy competition that in the

long-run stabilize prices of the products and will subsequently abolish mono poly,

enable fuel products to be available at retail outlet and at affordable prices, and give

consumers the right to make choice. Deregulation in Lagos has eliminated scarcity

resulting from disruption in the channels of supply and distribution through import

parity pricing. That is the disruptive impact of the prolonged nationwide scarcity on

other sectors of the economy will be teamed to its barest minimum. Fuel queues at

filling stations have relatively disappeared within Lagos State and indeed the nat ion

at large. Price volatility does not only affect micro and macroeconomic activities, it

also has a negative impact on purchasing power of Nigerians irrespective of one’s

financial status as indicated on the World Fact Book of 2005/2006 estimating 60

percent Nigerians living less than a $1 (dollar), (Mike, 2007).

Khan (2005), asserted fur ther that deregulation policy has caused series of political

disruption within the system because an average Nigerian believes that low petroleum

pricing is their birth -right, and have protected through various labour strikes each

time there is an increase in pump prices in the last few years. As observed by Khan

on the aforementioned, the widespread strive has crippled the socio -economic

activities, creating a very wron g signal and fear that this instability might trigger the

appetite of the military to take o ver power as was the precedent of the past. The

vision and goal of the government in adhering to the policy principles of deregulation

is determined by the successi ve precedence of other countr ies on deregulation,

(Kupolokun, 2003).

Deregulation of the commercial sector the petroleum industry has strengthened Lagos

economy in the following ways:

i. The policy has eliminated monopolistic tentacles that might be hindrances to

competitive prices level in the downstream sector;

ii. It has generated revenue to the state government through taxes from operative

oil companies;

iii. It has created jobs for lots of Lagosians through lots of investment of oil

servicing companies or logistic facilities companies.

iv. Deregulation has reposition the oil and gas industry in lagos for the economic

growth of Lagos State, (Kupolokun, et-al).

The government is not unaware of the inherent problems associated with the

downstream sector and its potential effect s on the labour market. Job losses is likely

to be prominent during the deregulation if the policy is not well implemented,

Schipke (2001).

The over-dependence on petroleum oil is more vivid in the external sector trends. The

penchant fo r imports reflects in the current account balances, whose oil component

expanded by an annual average of 57.7 percent during 1971 to 1980, 43 percent in

1981-1990 and 40.3 percent in 1991-1998. The current account balance grew with the

oil revenue trend, r eflecting import expansion as oil earnings grew. In 1982,

reflecting the crash in oil earnings and the tight rein on international trade through the

Stabilization Act implementation, current account balances dropped by 22.7 percent

in 1982 and further by 1 4.6 percent in 1983. The advent of the Buhari military

administration enforced fiscal discipline in the public sector, but soon gave way to

the Babangida military government whose softening of trade policies resulted in

current account balance growth by 22.8 percent. (See table 5).

TABLE 5: NIGERIA BALANCE OF PAYMENT OF OIL AND NON-OIL

CURRENT

ACCOUNT

CAPITAL

ACCOUNT CHANDES

YEAR

S Oil Non-Oil Total Oil Non-oil Total

IN

RESERVE

S

1970 386.6 -433.6 1923 -130.4 179.6 49.2 -46.6

1971 600.6 -830 1741.6 4 289.4 293.4 -177.6

1972 612.3 -935 1649.3 195.8 73.4 269.2 -57.2

1973 1,338.80 -1,286.10 2025.7 64.5 80.3 144.8 -192

1974 5,057.10 -385.6 6645.5 135.8 -141.7 -5.9 -3,102.20

1975 4,069.00 -4,026.40 2017.6 121.4 19.7 141.1 -157.5

1976 5,280.40 -5,538.80 1717.6 -42 -8.6 -50.6 339

1977 6,468.00 -7,115.50 1329.5 147.5 2.9 150.4 527.2

1978 5,649.80 -6,807.20 820.6 92.1 1,019.80 1111.9 -1,293.60

1979 8,987.90 439.40 11406.3 -4.4 817.6 813.2 -1,868.90

1980 12,814.20 243.70 15037.9 -541.8 -639.2 -1181 -2,402.20

1981 10,067.20 3.10 12051.3 149 780.5 929.5 -3,020.80

1982 7,777.70 203.20 9962.9 135.7 3,335.20 3470.9 1,398.30

1983 6,639.60 1,122.70 9745.3 146.1 2,589.60 2735.7 301.30

1984 8,152.30 82.00 10218.3 -402.1 574.1 172 -354.90

1985 10,401.40 337.50 12723.9 -13,610.00 -1,194.00 -14,804.00 -349.10

1986 28,208.60 552.10 30746.7 1,740.10 -3,641.00 -1,900.90 784.30

1987 28,435.40 -11,070.40 19352 -4,405.50 -12,338.10 -16,743.60 -159.20

1988 28,435.40 3,150.70 33574.1 -28,435.40 3,150.70 -25,284.70 2,294.10

1989 54,989.40 4,122.20 61100.6 -4,525.10 -25,696.80 -30,221.90 -8,727.80

106,626.5

0 -26,816.40 81800.1 -26,551.10 -22,593.80 -49,144.90 -18,498.20

109,063.9

0 -57,094.10 53960.8 -16,687.60 -10,795.00 -27,482.60 -5,959.60

181,823.3

0 -88,142.80 95672.5 75,174.10 -63,581.50 11,592.60 -65,271.80

115,533.2

0 -149,947.90 -32421.7 -6,041.40 -17,019.20 -23,060.60 -13,615.90

104,095.1

0 -156,399.40 -50310.3

104,094.1

–

156,399.4

0 -52,305.30 -7,194.90

412,844.4

0 -598,929.00 -184090

–

121,807.8

118,553.8

0 -3,254.00 15,325.10

670,158.3

0 -429,978.30 242176

–

256,583.0

0 -33,617.50

–

290,200.5

0 -183,950.60

664,016.9

0 -627,983.30 38030.6 -85,294.30 54,803.80 -30,490.50 -251,593.00

278,853.1

0 -608,961.80 -328111 -70,258.60 45,145.10 -25,113.50

36.950.3

SOURCE: CBN, 2001

Since the advent of deregulation policy in Nigeria the trends in interest rate, and

exchange rate has positively reflected the internal policy structure of the oil and gas

industry towards increase in money supply which is a reflection of Nigerian attitude

towards handling of large cash due to cash -and-carry system of doing business in

Nigeria. This socio-cultural attitude had made the movements of interest rates every

erratic at a times, to correlate with oil revenue pattern. The mismanagement of oil

revenue and non implementation of macroeconomic indices has triggered

macroeconomic instability in the economy.

According to CBN report in 2004, it shows that the exchange value of the Nigerian

currency (Naira) depreciated signif icantly from US$0.1010/N i n 2000 to $0.0123/N

in 2003, at this point, the g overnment had to adopt what he termed is called “ partial

or guided deregulation”. This led to artificial instability and the aftermath is that

domestic currency has persistently depreciated 30-40 percent; exchanging rate is $1to

N150. The implication is that Bank lending rate had an upward increase to the tone of

about 30 percent per annual. however, spot chicks in the money market between 2000

and later 2009 revealed the highest ba nking rate in the history of Nigerian banking at

about 80 percent per annual., at a time the non -bank financial institutions were doing

up to 15 percent flat (.i.e., 180 percent per annual.). This was the period of the second

experiment of Nigeria with the deregulation of interest rate. While the banking

institutions still lends above 20 percent and up to about 32 percent (effective), the

near collapse of the non -sector of the financial system in the 2000s has the rates

available in the that segment. Interest rates remain grossly sticky downwards because

the cost of funds and other determinants are adverse. Nigeria commodity prices are

generally sensitive to exchange rate movements than they are to change in interest

rates. However, according to Adedipe (2004), correlated the Nigerian inflationary

trend with the following arguments:

i. Increase proceeds in oil revenue and its immediate monetization. The excess is

rarely devoted to building up reserves or committed to specific and projects;

ii. Growth of money supply;

iii. Movements in exchange rates;

iv. Persistent increases in prices of refined petroleum products.

Adedipe further buttressed his position, by analysing major challenges that

deregulatory policy is likely to pose to monetary policy in Nigeria is with respect to

liquidity management, thus:

The penchant of Nigerian Governments for monetization of oil receipts tasked

the management of the apex bank, tore between administrative and market –

based instrument. In the years of economic buoyancy, triggered by robust oil

earnings, the Central Bank relied more on administrative tools. That includes:

Fixing of interest rates; Reserve requirements that has little relevance to

liquidity management because they remained fixed over long intervals; Credit

allocation on Sectoral basis and designation of preferred sectors; Foreign

exchange allocation through import licensing; and dual exchange rate

mechanism.(Adedipe,2004),

These policies according to him, created distortions as well as strange business

opportunities that rent seekers found easy to exploit. The collapse of crude prices in

the 1980’s started a process of rethinking of monetary in Nigeria, in line with the

reforms that were launched in 1986.

From the above scenario, there is virtually no e xchange rate system that Nigeria has

not tried in order to find a realistic exchange value for the Naira. The difficulty is

simply that of Nigeria being a net importer, whose external earnings derive largely

from mono -product (crude oil) economy. Currently , the rates are fully deregulated,

with the Central Bank relying heavily on the reserve requirements of Minimum

Discounts Rate (MRR), minimum liquidity ratio and cash reserve ratio for banks as

well as moral suasion. Another important monetary technique is Open Market

Operation (OMO) to compliment other mentioned fiscal tools earlier explained,

(CBN, 2004).

The external debt scenario was not different. Nigeria’s debt capacity expanded with

oil earnings and its future prospects. Credits of all k inds were ex tended to Nigerian

governments and commercial enterprises, some under Government guarantee. These

culminated in burgeoning debt burden that was sustained by a combination of factors:

i. High propensity to consume imports – Nigeria is reputed to be a major ma rket

for the products of certain global companies.

ii. Strong cash flow from crude oil sale that boosted confidence of creditors in

Nigeria’s capacity to service credit facilities and repay.

iii. Fiscal indiscipline coupled with corruption, resulting in diversion and

squandering of most of the funds borrowed.

iv. Capitalization of interest payments that were past due.

v. Debt rescheduling that multiplies the debt burden eventually, (CBN, et-al).

The efforts at repayment and debt servicing have been insufficient to bring a drop in

the debt stock, which ranged from $27.09 billion to $33.36 billion during 1991 to

1. This observation made President Obasanjo to remark recently that Nigeria’s

commitment to debt obligations over the years has not brought about a reduction in

the debt stock and its cost implications. However, this has to do more with lack of

external support in debt reduction, than with the punitive capitalization of unfulfilled

interest obligations.

Juke (2007) posited that deregulation o f the oil sector has subsequently triggered

speculation and high demand for money, thereby forcing the prices of stock upward

and pressurising interest rate to maintain a down ward position. This scenario

imputatively adjusted commodity pricing to take an upward view, despites the

introduction of these techniques, there was still no appreciable real economic growth.

Over time, CBN has become more pro -active in curbing up the excess liquidity from

circulation through the OMO and monetary policy generally became more restrictive.

4.8. CONSTRANTS TO DEREGULATION POLICY IN NIGERIA

The downstream subsector of the Petroleum industry is characterized by a wide range

of constraints among operators of the sector ; this includes: R etailers; Major and

Independent Marketers. All stands as an entity. The early investment opportunities

tapped by those major marketers today account for their consolidation and

domination of the sector both in retail outlets spread and percentage market share in

business nationwide. Thus:

• Retail Operation

The retail outle t is commonly known as a petrol station or filling station and it is a

multi-purpose-marketing centre where petroleum product/auto -related services are

sold and delivered to the public. Investment in the retail outlet is the most

conspicuous and common business area in the downstream sector.

Their operational activities have the following challenges:

i. Location: – a functional retail outlet must be strategically located at a

commercial point, close to offices, homes or highways;

ii. Appearance:- a standard retail outlet must be clean, bright, functional and

attractive to customers;

iii. Structure: – the building of a retail outlet should be simple but well designed

with adequate facilities;

iv. Human Resources: – work force is the key to any successful enterprise.

Personnel should be skilled, pleasant, clean, smart, and friendly;

v. Margin; – this is an allocated amount to marketers, dealers and transporters

expected to cover expenses incurred on products distribu tion which also

include PEF [bridging funds] to take care of uniform pricing of products across

the nation called bridging funds. Margins are therefore expected to be their

returns on investment. The existence of margin [especially on the pricing

template] is to recover full cost of investment, (PPMC, 2005).

In products marketing, price/quality differentiation s are in two dimensions; i.e. the

product itself and the selling activi ties. These two incorporate quantities added for a

particular style, associate d services strategies. Those specific selling strategies make

up the marketing aspect of the product, which gives an overview of the performance

of a product in the market.

When the inherent characteristics of a product are different, especially when the

products are the same, the consumer can be persuaded through advertising or other

selling activities to show that the products are different, this is called product

differentiation. Product differentiation is intended to distinguish the pro duct of one

producer to another:

• Major Marketers:

i. A progressive growth rate of 5-10 percent in volume sale, turnover and project.

ii. Improve capital and asset base, management, operational and marketing

strategies.

iii. Continued technical and after sale support, research/de velopment and

operational back up by foreign franchise holders.

iv. No serious competition from the indigenous independent marketers as a group

to challenge the industry (NNPC, et-al).

• Independent Marketers:

i. Continued apathy of the indigenous marketers to seek professional advice and

support from experienced techno crafts;

ii. Inadequate and poor knowledge of the industry in general;

iii. Lack of business focus, poor management style, operational and marketing

strategies;

iv. Dearth of information on the diverse business opportunities for diversification;

v. Inadequate professional support from the government, NNPC, and competent

consultants in the industry.

Comparatively, the major marketers control over 75 percent of the fuel business and

over 95 percent of the lubricant market while the independent marketers account for

the balance. No doubt, the competition is stiff; and few of the independents marketers

are struggling to survive while vast majority are gradually dying when compared with

the major marketers ’ heavy financial base . In these circumstances, the indigenous

companies need to gear up their financial base in order to meet up with the existing

business challenge s and approach the venture with the necessary dexter ity,

seriousness and drive.

In the absence of significant growth in the petro -economic activities, it is fair to say

that consumption levels follow the Petroleum Pricing Parity. Such conclusion is in

support of Price liberalization which of course an average Nigerian seems to be

apprehensive above when the sector is completely deregulated, this apprehension fear

of possible changes in Petroleum Products Pricing.

• Consumption of Petroleum Products in Nigeria:

The production yield from the four domestic ref ineries with an installed capacity to

process 445,000 barrel of crude include premium motor spirit (PMS) Dual Purpose

Kerosene (DPK), Jet A1 for plan, Liquefied Petroleum Gas (LPG), Automotive Gas

Oil (AGO-diesel), High Pour Fuel Oil (HPFO), Low Pour Fuel Oil (LPFO) and base

oils for the domestic market. However, the heavier oil (LPFO, HPFO, base oil e.t.c.)

is intended for export market, (CBN, 1996).

The output of petroleum products from the refineries has fluctuated over the years,

giving its disequilibrium in the increase in the demand of the three white petroleum

products as a result of increase in population growth and increase in the use of

alternative energy sources (generator). The average daily consumption of petroleum

products across the country is about: PMS (38-40 million litres); AGO (26-28 million

litres); and DPK (18 -21 million litres). Together they account for more than 60

percent of the total consumption of petroleum products. The situation largely

reflected the interplay of a myriad of factors, which are operational in nature as the

equation of supply to demand is complemented with petroleum importation . The

inadequate supply of petroleum products brought about constrain in price volatility

over the year under review, (RSCRPPSD, 2000).

4.8.1 The Impact of petroleum products pricing on the economy

The Petroleum industry is a major anchor of the Nigerian economy. Over the year, its

importance has become more noticeable in terms of its massive revenue generation

capability for national development as well as spin -off effects of its downstream

activities. These have largely being in the areas of industrialization through the

provision of industrial inputs, energy for powering productive activities as well as

employment generation. Revenue from the sub sector has been used to fina nce major

core industrial projects like the steel complexes, fertilizer plants, petrochemical plants

and aluminium smelter plant as well social infrastructure. Because of its international

nature significance, the industry has experienced revolutionary cha nges and

challenges. Notably among these was the Oil Price Shock of the early 1970’s which

was triggered by crude oil pricing decision, traditionally initiated by the international

oil companies was taken over by OPEC Members. The initial increase in the o il

pricing by exporting Countries led to a cut down in a demand and eventual global

economic depression. The resultant rapid fall include oil prices led to large shrinkage

in oil revenue of the Exporting Nations including Nigeria in the 1980’s.

Arising from these developments, many programmes embarked upon during the oil

boom period have remained uncompleted while those completed could not be

adequately maintained.

This chapter in an attempt to analyze pricing economies in relation to petroleum

industry is an attempt to practically address the subject matter, and not merely

scholarly/intellectual exercise. The chapter also identified the contributory

outstanding constraint, which includes the public control of the industry inefficiency

in production and distribution, and low-level investment in the industry and price,

(Adeoye, 2010).

• Price:

Price is the amount of money charged for a product or service the sum of the values

that consumers exchange for the benefit of having or using the product or service.

More broadly defined, price is the sum of all the values that consumers exchange for

the benefit of having or using the product or service. Historically, price has been the

major factor affecting buyer choice. This is still true in developing nations, and wi th

commodity products, (Cotler, 1999).

Throughout price history, prices were set by negotiation between buyers and sellers.

• Internal Factors Affecting Pricing Decision:

These are internal features that affect pricing decisions:

i. Marketing objectives;

ii. Marketing mix strategy;

iii. Cost of production.

Marketing objectives -, common objectives to the companies include survival,

current profit maximization, and market share leadership. Companies set survival

as their major objectives if they are troubled by two much capacity, heavy

competition or changing consumer wants. To keep a plant going, a company may

set a low price, hoping to increase demand. In the long -term, however , the firm

must learn how to add value that consumers will pay for or face extinction.

For the current profit maximization objective, the companies estimate demand and

costs at the different levels and set the price that will produce the maximum

current profit cash flow, or returns on investment while others that want a share

leadership set their prices as low as possible. However, those that are after product

quality leadership normally charge high prices to cover higher performance

quality and high cost of research and development.

Still on objectives, a company can use price to attain other more specific

objectives where it can set prices low to prevent competitors from entering the

market or set prices at competitors’ levels to stabilize the market.

Price is only one of the marketing mix tools that a company uses to achieve its

marketing objectives. Price decisions must be coordinated with product design,

distribution, promotion decisions to form a consistent and effective marketing

program for example, p romotion as a marketing mix is to position the product on

high performance quality, which entails charging a higher price to cover higher

costs. Hence, pricing that starts with an ideal selling price than target costs that

will ensure that the price is met.

Cost of production: costs set the floor for the price that the company can charge.

The company wants to charge a price that both covers all its costs for producing,

distribution and selling the product and delivers a fair rate of return for its effort

and risk. A company’s cost is an important element in its pricing strategy, (Pride

& Ferrell, 1985).

• External Factors Affecting Pricing Decision:-

i. These include the nature of the market and demand, competition and other

environmental elements: – The market a nd demand: – whereas costs set the

lower limit of prices, the market and demand set the upper limit. Both

consumer and industrial buyers balance the price of a product or service

against the benefits of owing it. Thus, it is imperative that the producer sh ould

understand the relationship between price and demand for its product before

setting its price;

ii. Competitors’ costs, price and offers: – Another external factor affecting the

company’s’ pricing decisions are competitors’ costs, prices, and possible

competitor reactions to the company’s own pricing moves. The company’s

pricing strategy may also affect the nature of the competition it faces, it means

that if a company follows high price, high margin strategy, it may attract

competition. A low price, low margin strategy, however may stop competitors

or strive them out of the market thereby creating room for monopoly;

iii. Other external factors: – economic conditions can have a strong impact on the

firms’ pricing strategies. Economic factors such as boom or r ecession,

inflation, and interest rates affect pricing decisions because they affect both the

cost of producing a product and consumer perceptions of the products’ price

and value. The company must consider the impact its prices will have on other

parties in the environment.

iv. The government is another important external influence in pricing decisions.

Finally, social concerns may have to be taken into account. For this reason, a

company’s short -term sales, market share and profit goals may have to be

broader societal considerations, (Pride & Ferrell, el tal).

• Pricing Mechanism:

Under pricing mechanism, we evaluated the relationships between price and

consumer’s perception of the price and value, and demand analysis:

i. Consumer perception of price and value: – the consumer will decide whether

a Product’s Price is right. Pricing decision like other marketing mix decisions

must be buyer oriented. When consumers buy a product, they exchange

something of value [the price] to get something of value [the bene fit of having

or using the product]. This means that the producer should understand the

value consumers place on its product and they should charge the price that fits

this value;

ii. Price-demand relationship: – each price the company will charge will lead to

a different level of demand. The relationship between a price and demand is

inversely proportional. The demand curve shows the number of units the

market will buy in a given time period, at different prices that might be

charged. Normally, demand and Pr ice are inversely related, that is, the higher

the Price, the lower the demand. In measuring the Price demand relationship

the market researcher must not allow other factors affecting demand to vary.

Therefore, the producer should charge the price that wil l enable him sell more

for a maximum revenue objective of the company;

iii. Price elasticity of demand: – marketers also need to know price elasticity

[how responsive demand will be to a change in price]. That is, it is a measure

of the sensitivity of demand t o changes in price. If the demand hardly changes

with a small change in price, we say the demand is inelastic. The price

elasticity of demand is given by the following formula, (Anyanwu, 1993).

The less elastic the demand, the more it pays the seller to ra ise the price while the

more elastic the demand, the more it pays the seller to lower the price, (Adam Smith,

cited in Miller,1979).

• Current petroleum (PMS) pump Price in Nigeria

Current retail Price as established by regulatio n has been N65/Litre since 2005. This

regulated price is split to cost components in line with the following benchmarks;

i. N56.71 – Depot Price.

ii. N2.42 – Transportation Margin.

iii. N1.15 – Dealer’s Margin.

iv. N 4.72 – Marketing Company Margin.

= 65.00 Retail Price. (PPPRA, 2008).

4.8.2. Analysis of Changes in Petroleum Pump prices in Nigeria

From January 1966 to September 1975, during the eras of General Aguiyi Ironsi,

Yakubu Gowon and Murtala Mohammed, price of petrol stood at 8.5k.In 1978,

General Obasanjo increased the price of petrol by 73.9 percent to 15.3k in April

1982, and President Shehu Shagari increased the price by 31 percent to 20k per litre

Also during the regime of Genera l Ibrahim Babangida, prec isely M arch 3 1, 1986,

petrol price was increased by 97.5 percent pushing it to 39.5k and on April 10, 1988

there was another increase of 6.0 percent and that took Petrol Price to 42.5k.In

January 1989 there was yet another increase by the Babangida administration of 43

percent which hiked prices to 60k per litre, while in March 16, 1991 there was yet

another increase by 16.6 percent per litre of Petrol.

During the interim National Government of Chief Earnest Shonekan in 1993, petrol

price was increased by 61.4 percent shooting the price to N 5.00k per litre. That same

year after General Sani Abacha had taken over; there was a reversal of 35 percent

bringing the price down to N 3.25.In October 1994 there was an increase by 36

percent, which sh ot price of petrol to N 15.00 per litre. After a protest by Nigerians,

government reduced the price by 26 percent to N 11.00 litre.

After the demise of Abacha and the ascension of General Abdulsalam Abubakar, the

government in December 1998 announced an in crease of 127 percent spurting the

price to N 25.00 per litre. After a public outcry, the prices came down by 20 percent

to N 20.00 per litre on January 16, 1999.

In June 2000, President Olusegun Obasanjo increased the price of petrol by 50

percent to N 30.00 per litre; the increase was followed by a nation -wide strike by

NLC which forced the price down by16.6 percent to N 25.00 per litre. In June 2000

there was another reduction in the price of petrol due to continued resistance by

Labour, these was by 12 percent which brought down the price to N22.00 in January

2002, there was an increase of 18.2 percent to N 26.00 per litre. In June 2003, was

also another increase by 53 percent to N40.00 per litre. After a nationwide protest by

Labour, government reduced the price of petrol by 15 percent to N 34.00 per litre. In

October 2003, the government announced an increase of 23.5 percent pushing the

price to N 42.00 per litre. In may2004, there was another increase of 18.81 percent to

N49.90 per litre. As usual, it was followed by a strike action. On December 21, 2004,

PPPRA announced a reduction of 3.81 percent, which brought price of petrol down to

N 48.00 per litre. In January 2005, petrol price was raised by 5.20 percent to N50.50

and last but not the least came in August 2005 by 28.71 percent to N65.00 per litre ,

(Sunday Vanguard, October, 2009).

When you take a comparative analysis of the data above, we have had about 18 petrol

price increases and 7 petrol price reversals. In all the increases totalling 1454.8

percent, General Obasanjo as military head of state effected 73.9 percent increase,

Shagari 31 percent, IBB 179 percent, Shonekan 614 percent, Abacha 300 percent,

Abubakar 107 percent and chief Obasanjo 149.95 percent. Looking at the petrol

reversals, we h ad a total of 128.4 percent. The first reversals, was made in 1993

during the time of Abacha by 61 percent and then Abubakar by 20 percent and

Obasanjo by 47.47 percent. Crude oil prices have been soaring over the past three

years due to global events such as war in Iraq, increased demand from China and

India, hurricanes Katrina and Rita vandalization of oil installations of August 2005.

speculation by oil analysts and refinery bottlenecks among others have contributed to

the sky -price of crude oil to abou t$70 a barrel; an all time high and because our

domestic price is based on import parity, we have to be where the wind blows.

Therefore, if you take a good look at the histogram you will find out that chief

Earnest Shonekan made the highest price increase within 3 months of 614 percent

almost half of the total price increases. The next was General Sani Abacha with 300

percent increase within a period of 5 tears. Next was General Ibrahim Babangida with

179 percent increase over a period of eight years. And O basanjo with 149.95 percent

increase within a period of 5 years. There have been more Price increases in during

this administration but the fact is that it is not the utmost in terms of valve or

quantity. (See table 6)

Table 6: ANALYSIS OF CHANGES IN PETR OLEUM PUMP PRICES IN

NIGERIA FROM 1966-2007

Column1 Column2 Column3

DATE PRICE

PER

LITRE

(N/k)

REGIME INCREASE (%)

Jan.1966-Sept.1978 8.5 Gen.Aguiyi Ironsi NIL- –

Gen.Yakubu Gowon NIL

Gen.M.Murutala NIL

Oct. 1st 1978. 15 Gen. Obasanjo 73.9

April 20th 1982 20 kobo Alh.Shehu Shagari 13

March 31,1986 39.5 Gen.Ibrahim Babangida 97.5

April 10th, 1988 42.5 “ “ 6

Jan 1st, 1989 42 kobo for

Commercial

& 60 kobo

for private

vehicle

“ “ 43

Dec.19th, 1989 60kobo “ “ 43

March 16th, 1991 70 kobo “ “ 16.6

Nov. 8th, 1993 5 Chief, Earnest Shonekan 61.4

Nov. 22, 1993 3.25 Gen. Sani Abacha -35

Oct. 2 1994 15 “ “ 361

Nov. 4, 1994 11 “ “ -26

Dec.20th, 1998 25 Gen. A. Abubakar 127

Jan.6th, 1999 20 “ “ -20

Jun 1st, 2000 30 Chief Olusegun

Obasanjo

Jun 8th, 2000 25 “ “ -16.66

Jun 13th, 2000 22 “ “ -12

Jan.1st, 2002 26 “ “ 18.2

Jun 20th, 2003 40 “ “ 53

July 9th, 2003 34 “ “ -15

Oct.1st, 2003 42 “ “ 23.5

May 29th, 2004 49.9 “ “ 18.81

Dec.21st, 2004 48 “ “ -3.81

Jan.2005 50.5 “ “ 5.2

Aug.2005 to 65 “ “ 28.71

2006 to May 2007 65 “ “ 28.71

May 25th, 2007 75 “ “ 28.71

June 24th, 2007 70 Yara’dua Umaru 25.69

Source: Sunday Vanguard, October 18, 2009.

NOTE: Total Price Increase = 1454.85

Total Price Decrease = 128.47

Regimes Price increases Price decrease

Olusegun Obasanjo = 73.9 % –

Shehu Shagari = 31.0% –

Ibrahim Babangida = 179% –

Ernest Shonekan = 614% –

Sani Abacha = 300% –

Abdulsalami Abubakar =107% –

Olusegun Obasanjo = 149.95% –

Umuru Yaradua = NIL –

TOTAL =1454.85 128.47

Fig. 4.8.1.

price increase (%)

general

obasanjo

shagari babangida shonekan abacha abubakar chief obasanjo

regimes

petrol price increases

Series1

Series2

Series3

Series4

Source: Sunday Vanguard, October 18, 2009.

Further justification for the realisation of full deregulatory poli cy as argued by

Oluleye (2004), were based:

i. Prompt response to the dynamics of market fundamentals;

ii. Sustainable margin to all stakeholders (i.e. transporters/dealers, marketers);

iii. Competitive cross-border pricing of products leading to elimination/reduction

of smuggling activities.

iv. Deregulation is the elimination of hoard;

v. Modulation with a view to moderate international price volatility in order to

stabilise domestic prices;

vi. Deregulation is fairness to end users; and

vii. Consistency with the nation’s economic and social policies.

Table 6 above shows an abrupt removal of subsidy (AGO) from June 2003 by a 54

percent price increase as part of deregulation process that cause dislocation to price of

the product particularly in Lagos State because with high demand, and inadequate

supply the price sky rocketed leading as mentioned earlier to labour strikes and chaos

and threat of insecurity in the country.

The government has decided to go ahead with the policy even against widespread

disapproval on the part of ordinary citizens. It is worth noting that the biggest gain

will be in savings generated from divesting in the sec tor which will subsequently free

up government funds for other activities. Potential savings in the downstream sector

are defined as the difference between the actual cost of supplying petroleum products

to consumers (either through imports or by refining crude) and a benchmark cost

corresponding to the procurement of these products from world markets under

competitive conditions; and are subdivided into three categories: procurement,

refining and distribution. (World Bank, 2004).

4.8.3. Effect of Exchange Rate on Petroleum Pricing

In 1973, the Price of PMS (Premium Motor Spirit) was 9.5k/litre, it rose by an

average of a 2.8k/litre to 60k/litre in 1991, and this was within a period of 18 years of

cosmetics reasons to impress the Internat ional Monetary Fund (IMF) especially

towards the end of the Second Republic in 1982/83. From 1991 to 1992, the

exchange rate against the dollar nearly double from N9.9 to over N17, inflation rate

shot up from 13 percent to 44.5 percent, the economy was tak ing a drip, debt burden

that has become a national issue and lenders had started to want to see some real belt

–tightening policy. A jump from 6k/litre to N3.25/litre was experienced in 1993

leading steeply at a rate of N2.37/y ear to the Millennium level o f N22/litre (see table

7).

TABLE 7: PMS Supply Price & other Market Indicators

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Inflation Rate

(%)

7.5 13.0 44.5 54.2 57.0 72.8 29.3 8.5 10.0 6.6

Exchange

Rate (parallel

market)

9.6 13.4 20.3 36.1 60.7 83.5 83.1 84.9 87.8 99.2 120.40

+ price of

PMS (N/Litre)

0.51 0.6 0.6 3.25 11.0 11.0 11.0 11.0 20.0 20.0

PMS supply

(X106MT)

4.2 4.6 5.3 5.3 4.2 4.1 4.3 3.3 3.9 4.3

Source: Central Bank + Committee on Review of Petroleum Products Supply/Distribution, 2001.

Fig.4.8.2.

Line Chart On PMS Supply Vs Other Indicators

Source: Central Bank + Committee on Review of Petroleum Products Supply/Distribution, 2001.

These past 11 years have thus been the most painful period of Petroleum Price

Management, basically we might say, the price of policy complacency has been as

high as the Price of Product, (Darkoru, 2003).

The world economy over time has improved marginally by 0.2 percent in 2003 as the

industrial countries of Western Europe experienced an economy showdown during

the first half of the year. Global output grew by 3.2 percent, compared with the 3.0

percent achieved in 2002. The marginal improvement was traceable to re duced

inflationary pressure, which led to the easing of macroeconomic policies in order to

support economic recovery during the second half of the year.

Other contributory factors were increased export as well as the financial and

economic responses introd uced by various countries during the year. OPEC’s

production policy, which was dictated by market consideration, helped to maintain an

average basket Price of US $28.14 per barrel, representing a 15.5 percent increase

over the level in 2002.

IMF facilities totalling Special Drawing Rights (SDR; having the financial ability to

borrow from other countries) of 76.5 billion was granted to members in 2003, while

SDR 69.8 billion or 91.2 percent was sourced from the General Resource Account

(GRA). African countr ies purchased GRA totally SDR 1.9billion. The World Bank

Group’s total commitment to developing countries in 2003 was UD$ 18.5billion,

representing a 5.4 percent decline from the level recorded in the preceding year.

The Authority of Heads of State and Government of the West African Monetary Zone

(WAMZ), at its sixth summit in Accra, Ghana, in December 2003, agreed that

member countries should redouble their criteria. The Authority also decided that the

proposed Headquarters of the West African Central Bank s (WACB) be sited in

Ghana and that all WAMZ Member Countries would be eligible to express interest to

host the Headquarters of the propose ECOWAS Central Bank. The Committee of

Governors of the Central Banks of ECOWAS Member States, at its 13 th meeting in

Accra, Ghana, in December 2003, agreed among others, to transfer the management

of the ECOWAS Travellers’ Cheque Scheme to a Private Sector Operator in order to

improve the operations of the West African Monetary Agency (WAMA), just like the

existing Petr oleum Products Prising Regulatory Agency (PPPRA) in Nigeria

responsible for the regulation of activities under the Petroleum Downstream Sub

sector, (CBN,2003)

Though, the approach government has chosen to deregulate is quite interesting

because it is unusual among the Third World. The Government recently sent a bill to

the Senate for the approval of reform in the upstream sector, which makes it

mandatory for oil companies operating in Nigeria, that is, Exxon Mobil, Chevron, Elf

and Shell to engage in the a ctivities of refining to the tone about 50 percent of their

crude oil in the country. What it implies is that, there will be more suppliers in the

Nigeria market, thereby encouraging competition and attendant lower cost. The oil

majors are not too thrilled about this but it is a price they have to pay if they want to

remain in the Nigerian market.

Nigeria is heading towards realising her potential s in the long run if the pursuance of

deregulation of the downstream subsector is effectively implemented. Howev er,

current macroeconomic policies are currently showcasing the benefits of maintaining

a good fiscal po licy in Nigeria; this has given Government the opportunity to re –

diversify her resources into other sector s of the economy as against absolute

dependence on oil revenues. Against the backdrop of the international community

agreeing to write off debt of most developing countries of which Nigeria was a prime

beneficiary of this gesture. The condition for suc h privileges is that the IMF wust

approve of the d omestic policy plan, for instance, the National Economic

Empowerment Development Strategy (NEEDS), after it was scrutinized, the IMF

subsequently approved the Policy Support Instrument (PSI), a negotiating instrument

employed by IMF to dictate to debtor country on what policies to adopt or implore.

In 2004, the ‘Paris Club’ gave Nigeria a debt relieve package of the sum of $18

billion, in the same vein agreed to allow Nigeria to buy back $6 billion. However, the

Government had to pay arrears of about $6. 4 billion within a specified period. And at

the same time government should implore aggressive reform policy plan that will

develop the economy. The combined effects of savings from deregulation and debt

relief is going to free huge resources to the government and people.

Khan (2005), noted key issues in the impact of deregulation are those of profitability,

efficiency; unemployment and capital market development:

i. Profitability: this is likely to occur to once the deregulation fully commenced,

but may be du e more debt write off by government, in order to give the

company a fresh start;

ii. Efficiency: Normally after deregulation, the downstream sector returns to

being efficient as costs are reduced and redundant employees are retrenched;

iii. Unemployment: this cannot be avoided, but as explained earlier government

can create effective safety nets so as to handle welfare matters arising;

iv. Capital Market Development: as 45 percent will be sold through the stock

exchange, this will strengthen the operations of the capital market and funds

will be raised through the stock issue. Thus making government derive more

revenue, (PPPRA, 2007).

4.9. MACRO-ECONOMIC INDICATOR OF DEREGULATION

According to Stanley Fisher and Rudiger Dornbusch; Macroeconomics emphasizes

the various interactions in the economy as a whole. It deliberately simplifies the

individual building blocks of the complete interaction of the economy, ( Daniel,

1997).

Hence in this context, we cannot discusse d the policy implementation of deregulation

or liberalizatio n of the economy as it relates to g overnment owe establishment,

without make either concrete or précised references to macroeconomic indicators that

could determine a better economic policy. (See table 8).

Table 8: Selected Macroeconomic Indicators

INDICATORS 1999 2000 2001 20021/ 20032/

a.) DOMESTIC OUTPUT PRICES

Real GDP Growth (Growth Rate %) 0.9 5.4 4.6 3.5 10.2

Oil Sector -7.5 11.3 5.2 -5.7 23.9

Non-Oil Sector 4.4 2.9 4.3 7.9 4.5

Non-Production (Mbd) 2 2.2 2.2 2.1 2.3

Manufacturing Capacity Utilisation 35.9 36.1 39.6 44.3 46.2

Gross National Savings (% of GDP) 21.6 23.1 19.3 19.5 25.7

Gross Fixed Capital Formation (% of GDP) 11 12.2 8.8 10.2 8.8

Inflation Rate (%) Moving Average) 6.6 6.9 18.9 12.9 14

Inflation Rate (%) (Year-0n-Year) 0.2 14.2 16.5 12.2 23.8

(b) FEDERAL GOVERNMENT FINANCE (%

OF GDP):

Overall Financial balance -8.9 -2.3 -4.3 -5.5 -2.8

Primary Balance 6.6 3 4.2 0.5 0.5

Retained Revenue 20.7 13.1 15.4 13.1 13.9

Total Expenditure 29.7 15.4 19.6 18.6 16.7

Domestic Debt Stock 24.8 19.8 19.6 21.31 18.1

External Debt Stock 80.5 68.1 61.2 72 61.1

(C) MONEY AND CREDIT (GROWTH RATE

%) :

Net Domestic Credit 30 -25.3 79.9 64.6 32.7

Credit to Government 32 -170.1 95.2 63,206 47.9

Credit to Private Sectors 29.2 30.9 43.5 19.7 27.1

Narrow Money (M1) 18 62.2 38.1 15.9 29.5

Broad Money (M2) 31.7 48.1 27 21.6 24.1

(d) EXTERNAL SECTOR:

Over Balance -10.2 6.9 0.5 -10.3 -2.2

Current Account Balance (% GDP) 1.4 15.7 4.7 0.7 6.9

Capital and Financial Account Balance (% of

GDP)

-11.5 -8.6 -4.1 -10.9 -9

External Reserves (US $ / barrel) 5,450.00 9,910.40 10,415.60 7,681.10 7,467.80

Average Crude Oil (US $ / barrel) 18 28.6 24.5 25 29.2

Average AFEM/DAS (N/$ 1.00) 92.3 101.7 111.9 121 129.3

Average Bureau de Change Exchange Rate (N/$) 99.3 111.1 133 136.9 141.4

(e) SOCIAL INDICATORS:

GDP Per Capital (N) 1,038.80 1,046.80 1,062.50 1,O65.4 1,028.50

Population Growth Rate (%) 2.83 2.83 2.83 2.83 2.83

Life Expectancy at Birth (Years) 54 54 54 54 54

Adult Literacy Rate (%) 57 57 57 57 57

Human Development Index 3/ 0.4 0.4 0.4 0.4 0.4

SOURCE: CBN, (2003).

From the above table, there is a strong correlation between commodity pricing and

economic activities, hence , the need to properly justify and understand the role of

macro-economic activities (indicator) better economic policing. If there is an increase

in oil Prices it may relatively decline or reduces consumption parthen that is, forcing

patronage on the use of smaller petrol efficient cars to regulate the quantity of oil

consumption.

For instance, when the Oil Consuming Countries knew about the OPEC Countries

Prices of Oil, the International Energy Agency (IEA) enjoined its entire Members’

States to build up enough oil reserves capacity that will cushion short fall in domestic

demands as a result of sudden Price shocks. This strategy proved successful but

walked against the Oil Producing States (OPEC). The situation was worsened by Oil

discoveries from other non-oil exporting countries such as Alaska, Arctic Island, New

Found Land, Mexico and China.

Increase in World Oil supply helped to lessen the dependence of Oil Cons umers on

the Organisation of Oil Producing Countries (OPEC). This Development created the

oil glut that affected the economic base of the OPEC countries, erratically Nigeria.

Beside, after the growth of economic activities in the world in the 1970s, the

economy of the World generally witnessed a downward trend. The situation became

worsen since 1980 when Japan growth rate fell below 1.5 percent for most

organisations for Economic Cooperation and Development (ECD) Countries.

Increased efficiency in the use o f o il produced a deadline in oil Consumption but

helped to create the glut. The result was that by the 1980s many third world States

were the worst hit.

As a result of the world glut, the production policy was no longer influenced by the

level of the count y’s reserve and economic needs but was been controlled by the

external influence, that is, the world oil m arket. The situation introduced

complication on the ability to Plan Nigeria’s oil p roduction and affected the

development programmes in the country. T he balance on current account which

showed a surplus of N7,062.5 million in 1974 turned to a deficit of N 2,380.4 million

in 1978.(see table 9).

Table 9: Current Revenue of the Federal Government (N MILLION)

SOURCES 1970 1971 1972 1973

Total Federally Collected Revenue 634.0 1168.8 1405.1 1695.3

Oil Reserve 166.6 510.1 764.3 1016.0

Petroleum Profit Tax and Royalties 97.7 383.1 540.5 769.2

Others 2/ 68.9 127.0 223.8 246.8

Non-oil Revenue 467.4 658.7 640.8 679.3

Company Income Tax 45.8 67.5 80.4 80.8

Custom & Excise Duties 370.0 491.0 481.1 516.2

Value-Added Tax (VAT) – – – –

Federal Government Independence

Revenue 3/

51.6 100.2 79.3 82.3

AFEM Surplus Revenue – – – –

Others 4/ – – – –

Allocation To : 582.4 1068.6 1325.8 1613.0

Federation Account 5/ – – – –

VAT Pool Account – – – –

AFEM Surplus Account – – – –

Petroleum Trust Fund – – – –

JVC Payments Account – – – –

External Debt Service Funds – – – –

National Priority Projects Funds – – – –

Others 6/ – – – –

Federal Government Retained

Revenue

448.8 1168.8 1404.8 1695.3

Federation Account 397.2 1068.6 1325.5 1613.0

Value Added Tax (VAT) – – – –

Federal Government Independence

Revenue

51.6 100.2 79.3 82.3

PTF – – – –

National Priority Projects – – – –

External Debt Service Funds – – – –

AFEM Surplus Intervention Fund – – – –

Grant – – – –

Others 7/ – – – –

SOURCES 1974 1975 1976 1977

Total Federally Collected Revenue 4537.4 5514.7 6765.9 8042.4

Oil Reserve 3724.0 4271.5 5365.2 6080.6

Petroleum Profit Tax and Royalties 2870.1 2707.5 3624.9

Others 2/ 853.9 1564.0 1740.3 1749.8

Non-oil Revenue 813.4 1243.2 1400.7 1961.8

Company Income Tax 148.8 261.9 222.2 476.9

Custom & Excise Duties 498.3 760.7 882.7 1145.6

Value-Added Tax (VAT) – – – –

Federal Government Independence

Revenue 3/

166.3 220.6 295.8 339.3

AFEM Surplus Revenue – – – –

Others 4/ – – – –

Allocation To : 4371.1 5294.1 6470.1 7703.1

Federation Account 5/ 4371.1 5294.1 6470.1 7703.1

VAT Pool Account – – – –

AFEM Surplus Account – – – –

Petroleum Trust Fund – – – –

JVC Payments Account – – – –

External Debt Service Funds – – – –

National Priority Projects Funds – – – –

Others 6/ – – – –

Federal Government Retained

Revenue

4537.0 5514.7 6765.9 8042.4

Federation Account 4370.7 5294.1 6470.1 7703.1

Value Added Tax (VAT) – – – –

Federal Government Independence

Revenue

166.3 220.6 295.8 339.3

PTF – – – –

National Priority Projects – – – –

External Debt Service Funds – – – –

AFEM Surplus Intervention Fund – – – –

Grant

Others 7/

• – – –

SOURCES 1978 1979 1980 1981

Total Federally Collected Revenue 7371.0 10912.4 15233.5 13290.5

Oil Reserve 4555.8 8880.8 12353.3 8564.4

Petroleum Profit Tax and

Royalties

3415.7 5164.1 8564.3 6325.8

Others 2/ 1140.1 3716.7 3789.0 2238.6

Non-oil Revenue 2815.2 2013.6 2880.2 4726.1

Company Income Tax 527.4 575.1 579.2 403.0

Custom & Excise Duties 1698.2 1143.9 1813.5 2325.8

Value-Added Tax (VAT) – – – –

Federal Government

Independence Revenue 3/

589.6 312.6 487.5 1997.3

AFEM Surplus Revenue – – – –

Others 4/ – – – –

Allocation To : 6781.4 10599.8 14746.5 10182.8

Federation Account 5/ 6781.4 10599.8 14746.5 10182.8

VAT Pool Account – – – –

AFEM Surplus Account – – – –

Petroleum Trust Fund – – – –

JVC Payments Account – – – –

External Debt Service Funds – – – –

National Priority Projects Funds – – – –

Others 6/ – – – –

Federal Government Retained

Revenue

5178.1 8868.4 12993.3 7511.6

Federation Account 4588.5 8555.8 12505.8 5514.3

Value Added Tax (VAT) – – – –

Federal Government

Independence Revenue

589.6 312.6 487.5 1997.3

PTF – – – –

National Priority Projects – – – –

External Debt Service Funds – – – –

AFEM Surplus Intervention Fund – – – –

Grant

Others 7/ – – – –

SOURCES 1982 1983 1984 1985

Total Federally Collected Revenue 11433.7 10508.7 11253.3 15050.4

Oil Reserve 7814.9 7253.0 8269.2 10923.7

Petroleum Profit Tax and Royalties 4846.4 3746.9 4761.4 6711.0

Others 2/ 2968.5 3506.1 3507.8 4212.7

Non-oil Revenue 3618.8 3255.7 2984.1 4126.7

Company Income Tax 550.0 561.5 787.2 1004.3

Custom & Excise Duties 2336.0 1984.1 1616.0 2183.5

Value-Added Tax (VAT) – – – –

Federal Government Independence

Revenue 3/

732.8 710.1 580.9 938.9

AFEM Surplus Revenue – – – –

Others 4/ – – – –

Allocation To : 9884.9 9798.6 10672.4 13750.2

Federation Account 5/ 9884.9 9798.6 10672.4 13750.2

VAT Pool Account – – – –

AFEM Surplus Account – – – –

Petroleum Trust Fund – – – –

JVC Payments Account – – – –

External Debt Service Funds – – – –

National Priority Projects Funds – – – –

Others 6/ – – – –

Federal Government Retained

Revenue

5819.1 6272.0 7267.2 10001.4

Federation Account 5086.3 5561.9 6686.3 9062.5

Value Added Tax (VAT) – – – –

Federal Government Independence

Revenue

• – – –

PTF – – – –

National Priority Projects – – – –

External Debt Service Funds – – – –

AFEM Surplus Intervention Fund – – – –

Grant

Others 7/ – – – –

SOURCES 1986 1987 1988 1989

Total Federally Collected Revenue 12595.8 25380.6 27596.7 53870.4

Oil Reserve 8107.3 19027.0 19831.7 39130.5

Petroleum Profit Tax and Royalties 4811.0 12504.0 6814.4 10598.1

Others 2/ 3296.3 6523.0 13017.3 28532.4

Non-oil Revenue 4488.5 6353.6 7765.0 14739.9

Company Income Tax 1102.5 1235.2 1550.8 1914.3

Custom & Excise Duties 1728.2 3540.8 5672.0 5815.5

Value-Added Tax (VAT) – – – –

Federal Government Independence

Revenue 3/

433.7 407.6 540.5 938.0

AFEM Surplus Revenue – – – –

Others 4/ 1224.1 1170.0 1.7 6072.1

Allocation To : 11868.3 24692.2 26770.3 46860.3

Federation Account 5/ 11868.3 24692.2 26770.3 46860.3

VAT Pool Account – – – –

AFEM Surplus Account – – – –

Petroleum Trust Fund – – – –

JVC Payments Account – – – –

External Debt Service Funds – – – –

National Priority Projects Funds – – – –

Others 6/ – – – –

Federal Government Retained

Revenue

7969.4 16129.0 15588.6 25893.6

Federation Account 6311.6 14551.4 15046.4 18752.1

Value Added Tax (VAT) – – – –

Federal Government Independence

Revenue

433.7 407.6 540.5 938.0

PTF – – – –

National Priority Projects – – – –

External Debt Service Funds – – – –

AFEM Surplus Intervention Fund – – – –

Grant – – – –

Others 7/

1224.1 1170.0 1.7 6072.1

SOURCES 1990 1991 1992 1993

Total Federally Collected

Revenue

98102.4 100991.6 190453.2 192769.4

Oil Reserve 71887.1 82666.4 164078.1 162102.4

Petroleum Profit Tax and

Royalties

26909.0 38615.9 51476.7 59207.6

Others 2/ 44978.1 44050.5 112601.4 102894.8

Non-oil Revenue 26215.3 18325.2 26375.1 30667.0

Company Income Tax 2997.3 3827.9 5417.2 9554.1

Custom & Excise Duties 8640.9 11456.9 16054.8 15486.4

Value-Added Tax (VAT) – – – –

Federal Government

Independence Revenue 3/

1724.0 3040.4 4903.1 5626.5

AFEM Surplus Revenue – – – –

Others 4/ 12853.1 – – –

Allocation To : 84735.4 76350.9 126486.4 162746.4

Federation Account 5/ 68064.2 54000.0 77800.0 106799.4

VAT Pool Account – – – –

AFEM Surplus Account – – – –

Petroleum Trust Fund – – – –

JVC Payments Account 16671.2 22350.9 48686.4 55947.0

External Debt Service

Funds

• – – –

National Priority Projects

Funds

• – – –

Others 6/ – – – –

Federal Government

Retained Revenue

38152.1 30829.2 53264.9 126071.2

Federation Account 23575.0 27788.8 38240.0 51797.7

Value Added Tax (VAT) – – – –

Federal Government

Independence Revenue

1724.0 3040.4 4903.1 5626.5

PTF – – – –

National Priority Projects – – – 55947.0

External Debt Service

Funds

• – – –

AFEM Surplus Intervention

Fund

• – – –

Grant

Others 7/ 12853.1 – 101218 12700.0

Source: Federal Ministry of Finance and Economic Development, 1998(2) Central Bank of Nigeria 1999.

i. Includes Revenue from export sales, Domestic sales, taxes on petroleum products, rent, e.t.c.

ii. Comprises revenue from interest payments, rents on Government properties, personal income tax of armed

forces, police, external affairs and federal capital residents.

iii. Includes customs Levis and education taxes e.t.c.

v. Includes transfer of federation Account from Domestic oil sales.

vi. Includes Drawn -down from Fertilizer Reserve, Customs Levee, Subvention/Grant, and Sterilis ed Oil

Windfall proceeds and Grant. This Format was discontinued as from 1998 to reflect changes in Fiscal

policies.

Current Review of the Federal Government Revenue (N MILLION)

SOURCES 1994 1995 1996 1997

Total Federally Collected

Revenue

201910.8 439987.3 523597.0 591151.0

Oil Reserve 160192.4 324597.6 408783.0 410811.1

Petroleum Profit Tax and

Royalties

42802.7 42857.9 76667.0 68574.1

Others 2/ 117389.7 281689.7 332116.0 348237.0

Non-oil Revenue 41718.4 135439.7 114814.0 174339.9

Company Income Tax 12274.8 21878.3 22000.0 26000.0

Custom & Excise Duties 18294.6 37364.0 55000.0 63000.0

Value-Added Tax (VAT) 7260.8 20761.0 31000.0 34000.0

Federal Government

Independence Revenue 3/

3888.2 20436.4 3407.0 8339.9

AFEM Surplus Revenue – – – –

Others 4/ – 35000.0 3407.0 43000.0

Allocation To : 189305.5 430701.9 516783.0 578568.6

Federation Account 5/ 110641.0 161998.5 179000.0 208000.0

VAT Pool Account 7260.8 20436.4 31000.0 34000.0

AFEM Surplus Account – 79645.3 103190.0 130811.1

Petroleum Trust Fund 9957.5 35000.0 42000.0 37757.5

JVC Payments Account 614446.2 45000.0 39000.0 45000.0

External Debt Service Funds – 44000.0 44000.0 44000.0

National Priority Projects Funds – 26000.0 44000.0 44000.0

Others 6/ – 18621.7 34593.0 35000.0

Federal Government Retained

Revenue

90622.6 249768.1 325144.0 351262.3

Federation Account 53661.0 325144.0 81056.0 101000.0

Value Added Tax (VAT) 1452.2 7437.8 10746.0 12238.7

Federal Government

Independence Revenue

3888.2 20761.0 3407.0 8339.9

PTF – 35000.0 41935.0 377757.5

National Priority Projects 19826.2 26000.0 44000.0 44000.0

External Debt Service Funds – 44000.0 41285.2 32924.1

AFEM Surplus Intervention

Fund

• 38000.0 62000.0 47002.1

Grant – – 2000.0 2000.0

Others 7/ 11794.8 – 38714.8 66000.0

SOURCE: NAPETCOR Quality magazine, NNPC Vol 4, No.2 (2004) .

i. Provisional

ii. Include revenue from export sales, Domestic sale, Taxes on Petroleum Products, rent etc.

iii. Comprises revenue from interest payment rent on Government properties, Personal income

Tax of Armed Forces, Police External Affairs and Federal Capital Residents.

iv. Includes customs Levis and Educational Taxes etc.

v. Include transfer of Education Account from Domestic oil sales.

vi Include transfer to special and excess Reserve, Educational Fund.

vii. Include drawn -dawn from fertilizer reserves, customs Levis, subvention/Grant and sterilised oil

windfall proceeds and Grant.

viii. This format was discontinued as from 1998 to reflect change in fiscal policies.

Table 10: FEDERAL GOVERNMENT ACCOUNT OPERATION (N ‘MILLION’)

SOURCES 1998 1999 2000 2001 2002

Total revenue (gross) 463608.8 949187.9 1906159.7 2231532.9 1731837.5

Oil revenue (gross) 3/ 324311.2 724422.5 1591675.8 1707562.8 1230851.2

Crude oil export 100683.2 514038.9 947163 934284.2 496311.5

PPT and royalties, etc 67986.6 164273.4 525072.9 639234 392207.2

Domestic crude sale 56583.6 46110.2 90429.7 121544.6 304242.8

Other oil revenue 99057.8 0 23010.2 12500 38089.7

Less: 157978.1 388290.9 734093.6 804100.5 125717.8

First charge 4/ 123199.3 388290.9 734093.6 804100.5 125717.8

Transfer to PSTF 34778.8 0.0 0.0 0.0 0.0

Oil revenue (Net) 166333.1 336131.6 857582.2 903462.3 1105133.4

Non Oil revenue 139297.6 224765.4 314483.9 523970.1 1105133.4

Companies Income Tax 33315.3 46211.2 51147.4 68660.0 89104.0

Customs and excess duties 57683.0 87906.9 101523.6 170557.1 181408.2

Privatization proceeds 0.0 0.0 18103.6 77958.1 19697.8

Value-added tax(VAT) 36867.7 47135.8 58469.6 91757.9 108601.0

Tax on petroleum products 0.0 14376.2 25467.2 30240.3 0.0

Independent rev. of fed. Gov. 11431.6 20076.5 38061.8 4405.2 68134.5

Education Tax 0.0 0.0 7528.0 16213.6 10284.2

Others 11431.6 9058.8 14182.0 24177.9 23756.6

Federal Collected Revenue(Net) 305630.7 560897.0 1172066.1 1437432.4 1606119.7

Federation account 404688.5 576801.4 1262468.3 1599361.1 1899487.8

Transfer to AFEM surplus

Account

99057.8 0.0 0.0 0.0 0.0

Transfer of stabilization account 0.0 63114.4 0.0 17433.6 0.0

Transfer of federation revenue

account

0.0 0.0 64482.7 20363.5 0.0

Transfer of government Ind.

Revenue

11431.6 20076.5 38061.8 44405.2 68134.0

Transfer of VAT pool account 36867.7 47135.8 58469.6 91757.9 108601.0

Deduction for 13% Derivation

arrears

0.0 0.0 7527.3 0.0 0.0

National judicial council 0.0 0.0 9996.0 8750.7 0.0

Transfer to others 5/ 0.0 0.0 32287.0 118349.6 29982.0

Amount distributed 257331.4 446474.7 1051643.9 1298301.3 16692770.8

Federal government 124573.0 218874.5 502294.4 530657.6 859014.9

State government 57500.0 108214.8 248561.7 391326.9 398767.6

Local government 47910.0 90179.2 207146.6 245436.6 333900.6

Special Funds 14306.0 29206.2 9364102 130880.2 101087.7

Federal capital territory 2392.0 4509.0 1050.5 12780.1 1359.8

Ecology 4858.0 9125.4 21021.1 25490.8 2711.7

Statutory stabilization 1214.0 2281.4 5255.3 6357.5 7460.6

Mineral detection 1416.0 3405.5 52243.9 78381.4 89198.9

Mineral producing areas 4381.0 9884.9 0.0 0.0 0.0

Res account *** *** 4610.4 7870.4 356.7

Overall balance -99057.8 _15904.40 -90402.20 -171928.70 -293368.10

Financing 99057.8 15904.4 90402.2 171928.7 293368.2

Transfer from AFEM surplus account 99057.8 0 0 0 202799.1

Draw dawn from federation reserves 0.0 17664.90 20501.8 20363.2 15000

Draw dawn from stabilisation account 0.0 -1760.5 8508.9 64.3 75569.1

Draw down from excess crude/ppt

account

0.0 0 72660.1 112907.7 0

Draw dawn from GMS proceeds *** *** *** 77958 0

Other funds 0.0 0 -11268.6 -39364.5 0

Source: Federal Ministry of Finance, Central Bank of Nigeria & Statistical Bulletin December 2007.

i. Revised

ii. Provisional

iii. Consist of export and domestic oil revenue

iv. As consist in memorandum item

v. include education

Surprisingly, a percentage change in oil export witnessed an increase in 1979 to 19

percent by 1980 -1982. I t subsequently fell to -12 percent and -13 percent and -20

percent in 1988, 696.15million barrel were exported. The percentag e charge in export

was -10 percent and -60 percent I 1977 and 1978 respectively. Furthermore, the

percentage charge in exports of oil witnessed an increase in 1979 of 19 percent and

but by 1980, 1981 and 1982 it has fallen to -12 percent.

At the first sigh t of oil glut in early 1980s to 1982, there was a sharp decline from

562.23 million to 267.20 million barrels in the late 1980s. This decline triggered a

sharp change in the revenue from 23 percent to 15 percent for a period of two years.

The high dependen ce of the Nigerian economy on petroleum created some socio –

political problems, which have lingered on since 1970s until date. The fortunes of the

economy and the Nigerian people fluctuated with those of the oil sector, dictated by

the world market for the commodity.

This Socioeconomic crisis led to strategic reforms which gave birth to the creation of

various Petroleum Commission s such as Petroleum Trust Fund ( PTF), which was

abolished in 1 994 by the late, Head of State , General , Sani Abacha’s regim e.

Petroleum Equalization Fund (PEF) in 1975 by a decree and amended by decree 32

of 1989 shouldered with the responsibility to equalize petroleum products through

bridging across the country. However, the persistent drop in local production, further

force the prices of oil to drop significantly than expected by development planners.

President Shehu Shagari blamed the western oil consuming countries and t he

international Energy Agency (IEA) of manipulating their stock pile of oil in an

attempt to force down the oil prices, but p ledged his loyalty to the OPEC C ountries

which tried to maintain a $34 barrel price in the face of the world oil glut. Nigeria

Newsletter of April, 1981, pointed out that, ‘‘ Nigeria problem of balance of payment

was not only due to the slumming in the world oil market but also to a decline in

the level of imports which had for many months been running far ahead of external

earnings’’, (Amu, 1980).

Consequently, at the presentation of 1981 Nigerian National Budget by President

Shehu Shagari, he told the nation that Nigeria’s problems during the past years had

been associated with the world o il glut and though it would not be allowed to

continued; he said, it was therefore absolutely necessary to take an “Economic

Austerity Measure” to p rovide a check in the upward trend in public expenditure.

President Shagari’s advisers had reflected the situation of economic uncertainty

facing Nigeria because of the glut in contradictory assertions in October 1981. In

early 1982, it was unclear what percentage the federal authorities will retain. Political

confusion and wrangles of the second civilian government made the situation more

complicated and complex to the economic crisis been created by the effect of the oil

glut. This led the g overnment to adopt many measures to curb public spending and

reduce the outflow of foreig n exchange. In a bid to rebuild the economy, the Shagari

administration severed the rate of imported goods led by Shagari’s Economic

Adviser, Emmanuel Edozien, who told the United Kingdom’s Financial Times that a

number of policy measures were soon to be announced to ensure that the rate of

imports was diminished.

After the oil b oom, Nigeria was already facing one of its cyclical economic squeeze

in which several categories of econo mic activities were faced with a temporary

decline. There was a threat to both the oil and gas Industry and Agricultural sector in

that situation. Not only were many industries damaged by smuggling of competitive

goods, but many were deprived of government financial support. Agricultural

production was delayed; it recorded only 3 percent in 1980 and 15 percent in

Manufacturing. The declared econo mic measure (Austerity Measures) in the 1980’s

affected all areas of public spending. The state governments which depend largely on

Federal Allocation to run their states fell into serious economic deprivation while the

Federal pawed weighted its big stick on a ban on further recruitment, suspension of

foreign travel, a ban on purchases of official vehicles and repla cement of capital

projects. Basic travel allowances were reduced with adult allowance from N 10,000

to N8, 000 and that of companies on business trip from N6, 000 to N3, 000. Some

held the view that most of the items in the austerity measures deserve to be continued

in the nation’s income.

Other commentators gave the government substantial credit for its economic

policies; African Research Bulletin; (1982). But one s triking point worth noting was

the country’s inflationary crises time, Nigeria’s vigour an d foreign policy stand, aid

to African States and liberation Movements would be affected or if need be,

reconsidered.. On several foreign policy issues, she must reconsider her position and

strength before she acts. Nigeria policy formulation at home and a broad is bound to

be in consonance with her economic strength.

Government, of which Nigeria is one, conducts foreign policies in pursuit of the pre –

eminent long -range goals of economic well being. The situation of economic

imbalance in which Nigeria finds herself because of the glut, will affect both her

pursuit of economic well being and her foreign Policy in the present a nd future to

come if the Obasanjo’s economic reforms of (2005) were not strictly implemented,

(Olorunfemi,1983).

4.9.1. Socio-Economic Benefits of Deregulation Policy in Nigeria.

Recall the series of socio economic crisis that usually herald pre -deregulated era with

its adverse consequences on the economy as well as social hardship and discomfort

imposed on Nigeri ans. Such as, irregular s upply of Petroleum Products to retail

outlets, hoarding, cross -border-smuggling, adulteration of products, u nending long

queues leading to the spring up of petroleum vendors across the length and bre adth of

the country. This situation became worsened in the late 1990’s, characterized by low

performance of the domestic refineries which resulted in excessive dependence on

importation of refined petroleum products. There was also limited in -flow of

investment into the downstream petrol eum sub sector due to low margin and poor

pricing structure that could trigger or encourage investment. Hence, it becomes

obvious that the sector is stagnated and minimal linkages to other sectors of the

economy in terms of employment, revenue acquisition to the gross domestic product

(GDP) collapse in national income empowerment (NIE) and direct confrontation with

inflationary trend. It was at this instance, that it became imperative for President

Olusegun Obasanjo’s regime, at inception in 1999 to open up the downstream

petroleum sub sector for more players in 2003.

The functionability of this policy (deregulation) has been able to establish parameters

and codes of conduct for which all operators in the sector enjoys a level play ground

as well as enforcem ent of sanctions on defaulters. From the historical analysis,

scholars in the oil industries see deregulation of the oil and gas industry in Nigeria as

a welcome development, even while that still maintained that crude oil business is

strictly political, b ut oil is today by far the most important and widely use d energy

source in the global economy and it goes into everything from vehicle fuels to form

fertilizers, manufacturing of plastics, drugs and paints. Its production and distribution

pattern has a direct impact on all economic activities.

The socioeconomic of Nigeria’s oil had historical economic value in import earnings

that is, in 1971 a barrel of crude oil was sold for $3 a barrel , $12.42 in 1974 and $37

in 1990, 1990, 200. Her receipt increased fro m $845.5 million in December 1979 to

$1,170.3 million a year later, with net foreign assets amounting to $6,353.5 million

by the end of May 1981 when oil production was 2.3 million barrels a day. This

remarkable rise in the oil revenue enables the country to increase her annual budget

from N 104 million in 1961 to N 14.7billion in 1980-81 with an estimated provision

for the national development plan rising from N 30 billion in 1975 -85. Being that as

it may, the rate of inflation, which average 18.5 percent in 1974-75, has today risen to

50 percent as a result of a fall in production due to multifarious reason such as spill

over of the petrol-dollar into the economy at large, (PPPRA, 2004).

However, since the inception of dereg ulation partial achievement has been witnessed

which changed the deteriorating situation of the downstream subsector to become

more vibrant and sustainable. These changes have been gradual but very effective.

Some of these achievements are in the area of products availability, modulation of

price volatility (PSF), and massive investments in the sector through wealth creation ,

enhance government revenue, employment generation, enthronement of competition

and better service delivery.

The evolvement of deregulatory policy has prov ided great incentives for growth and

expansion of banks and non -financial institutions through the deregulation of interest

rate, hence created several pressure and high degree of c ompetition in the bank

sector. For example is the former CBN governor Soludo’s “N 25 billion Naira Banks

recapitalization in 2004.

The doctrine of deregulation stipulates that economic welfare will be improved by

freeing all types of government control imposed on economic and business activities.

Specifically, it requires that th e state dismantle existing regulatory structures in

financial markets, traded goods market and in labour markets. The central benefits is

that factors of production, goods and services will be optimally priced and allocated

where prices are freely determin ed in a competitive environment; and further give

rise to free price bargaining. Although, deregulation policy in Nigeria from the

inception of independence in 1960 introduced import substitute strate gy with a view

to industrialise the Nigerian economy. Th e post Nigerian Civil War gave a new

directive towards economy rehabilitation, reconciliation and reconstruction policy

guidelines to the Federal Government.

While it is argued that deregulation parades positive impact, including profitability,

capital market development, there also reside s gray areas , most importantly that of

price volatility of petroleum products. Table 9 and 10 above illustrates the of price

increases of petroleum products and high interest rate forex in Nigeria from inception

of the deregulation policy to date. The high price increases so far of 53 percent in

June, 2003 preparatory to the introduction of deregulation in September of the same

year should be acknowledged.

CHAPTER FIVE

ANALYSIS AND DISCUSSION OF DATA ON THE EFFECT OF

DEREGULATION IN THE LAGOS STATE, NIGERIA

5.1. DATA ANALYSIS

Having sequentially analysed the policy of deregulation in the downstr eam subsector

of the oil sector in Lagos State in the previou s chapter, this chapter is limited to the

concern with the presentation and analyses of the cla ss responses of respondent s in

the raised questionnaire. However, the purpose for this analysis is t o scientifically

determine the validity of salient issues raised in the previous chapters regarding the

theme of this research work.

Whereas Nine hundred (900) questionnaires were administered to all the twenty (20)

Local Government Areas and thirty -seven (37) Local Development Area Councils,

through organised sectors; PENGASSAN, NUPENG, Oil Companies and Civil

Society of Lagos State. Eight hundred and fifty -seven questionnaires were duly

completed and received on which we are basing our analysis on. Detail s of the

distribution of questionnaires in the four sectors are contained in table 15.

Table11: Distribution of Questionnaires

S/NO SAMPLE CASES NUMBER OF

RESPONDEN

TS

RETURNED

QUESTIONNAI

RES

QUESTIONNAIR

ES

UNRETURNED

1 PENGASSAN 100 90 10

2 NUPENG 100 96 4

3 OIL COMPANIES 300 281 19

4 PUBLIC OPINIONS 400 390 10

TOTA

L

900 857 43

Source: Questionnaires distributed and returned, March, 2010.

The respondents to the questionnaires were also made up of various sectors as

captured in figures 5.1.1. To 5.1.2 shown below.

Figures 5.1.1 indicate contributions of respondents in Lagos, and figure 5.1.2 indicate

percentage contributions apportioned to respondents in the State.

Figure 5.1.1.to 5.1.2. Distribution of Questionnaires to Respondents

i. PENGASSAN…………….. 90 (11%)

ii. NUPENG …………………..96 (11%)

iii. OIL COMPANIES ………..281 (33%)

iv. PUBLIC OPINIONS ………….390 (45%)

Source: Sample survey, March, 2010.

Source: Sample survey, March, 2010.

Figure 5 .1.1.shows that those within 390 responded to the questionnaires the

implication of this is that 390 respondents from the public (masses). Within Lagos

State are more involved in the usage and business of the petroleum products, either as

users or marketer/ users than those below 390. It goes a long way to lay claim to the

authenticity and reliability of data collated from this sector of the economy. While

those within 390, rep resented 45 percent. We are confident to say that the available

data is authentic and from a reliable source.

5.2. Table 12 : RESPONDENTS’ PENGASSAN VIEW ON DEREGULATION

POLICY:

Column1 Educational Number of Returned Respondents in

Respondents

passive

Age Qualification Qualification Questionnaires

support to

deregulation to deregulation

22 years

and HND HND 23

above 100

% BSc BSc 67 90 87 3

Source: Sample survey, March, 2010.

Fig. 5.2.1

Source: Sample survey, March, 2010.

RESPONDENTS’ PENGASSAN PIE CHART IN PERCENTAGE (%)

Source: Sample survey, March, 2010.

From the above figure 5 .2.1, table 12 , and the Pie Chart shows that majority of

respondents were re holders of Higher National Diploma (HND) and Bachelor

Degrees in various fields of endeavours. They play prominent role in the

determination of policy initiation, and implementation in the oil and gas sector of the

economy. Hence, their minority opinion is of great concern in the industry. 900

questionnaires were distributed, 90 respondents, 87 of 24 percent of respondents of

PENGASSAN supported deregulation policy. Holders of Higher National Di ploma

(HND) Certificate are 23, representing 6 percent, followed by those with Bachelor of

Science (BSc) 67, which constitute 18 percent of the total respondents of 900.

Giving the involvement of these calibres of respondents in the oil and gas industry,

their inputs would be valid and reliable since they have background knowledge of the

theme of this research work, and as stakeholders who had been affected by the policy

(deregulation of the downstream subsector of petroleum and gas industry), cut across

the length and breadth of the Nigeria economy. These classes of respondents are well

informed, mature in age, and are responsible. Whose opinion in this volatile sector

can be trusted and relied upon

5.3. Table.13: RESPONDENTS’ NUPENG VIEW ON DEREGULATION

POLICY:

Column1 Educational Number of Returned Respondents in

Respondents

passive

Age Qualification Qualification Questionnaires

support to

deregulation to deregulation

22 years

and FSLC 67%

above SSCE 19%

OND/NCE 10% 96 90 6

SOURCE: Sample Survey, March, 2010.

Fig. 5.3.1.

SOURCE: Sample Survey, March, 2010.

RESPONDENTS’ NUPENG PIE CHART IN PERCENTAGE (%)

Source: Sample Survey, March, 2010.

Figure 5 .3.1, table 13 , and on the above pie chart, shows respondents educational

qualifications, that the bulk of respondents, 67 representing 17 percent holds First

School Leaving Certificate (FSLC), 19 respondents, representing 5 percent holds

West Africa Examination School Certificate/Senior School Certificate Examination

(WAESC/SSCE), while 10 respondents, representing 3 percent holds Ordinary

National Diploma (OND) complements the nucleus of respondents. These are the

large army of foot -soja, they constitute majority respondents in the oil and gas

industry, 90 respondents, representing 23 percent of the entire respondents.

Respondents whose age is above 22 years are 98 respondents representing 25 percent.

Below 22 years, 2 respondents, representing 0 percent respectively. Most astonishing

is that, 90 respondents, representing 23 percent advocated for the deregulation of the

downstream subsector of the oil and gas industry, while 6 respondents, representing 2

percent were indifferent to the policy. Acknowledging the impact of the policy on the

work force of the sector, when fully implemented, the information they provided

would be valid and reliable.

5.4. Table14: RESPONDENTS’ OIL COMPANIES OPINION ON DEREGULATION

POLICY:

Column1 Educational Number of Returned Respondents in

Respondents

passive

Age Qualification Qualification Questionnaires

support to

deregulation to deregulation

Below 22

years =

0% and MSc/PhD/Higher 187 281 271 19

Above 22

year=

100 %

Source: Sample Survey, March, 2010.

Figure 5.4.1.

Source: Sample Survey, March, 2010.

RESPONDENTS’ OIL COMPANIES PIE CHART IN PERCENTAGE (%)

Source: Sample Survey, March, 2010.

Figure 5.4.1, table 14 and on the above pie chart, run s the analysis of Oil Companies

comprises major and independent marketer. Major m arketers are multinational oil

corporations who engage in the refining, exploration, exploitation and marketing of

petroleum products, they are; Total oil plc, Texaco, Oando Petroleum, Conoil, AP

Petroleum just to mentioned but a few.

Their huge capital base enables them to diversify their business network, or

monopolises the marketer. The independent Marketers are indigenous operators in the

retail outlets of the oil and gas industry . From the above table, figure 6.3 .1 and chart

shows that out of the ret urned questionnaires of 281, 271 respondents positively

responded to deregulation policy, 19 respondents remained indifferent or passive to

the policy. Respondents from the oil companies have a very sound educational

qualification, 187 respondents have BSc, MSc and PhD degrees, 94 respondents

posses OND/HND certificates, while the ages of these respondents are 22 years and

above.

To further lay claim on the reliability of our information, figure 5.1.5 and the chart,

shows that those involved with marketing of the petroleum products who would also

be users were 281 respondents, being 19%. As a matter of fact, the marketers are also

users, in other words, all the 281 respondents are users and stakeholders in the oil and

gas industry, the involvement of respondents with the sector, either as

marketers/users or users only, their perception of the policy as well as assessment of

its implementation.

5.5. Table 15: RESPONDENTS’ PUBLIC OPINION ON DEREGULATION

POLICY:

Column1 Educational Number of Returned Respondents in

Respondents

passive

Age Qualification Qualification Questionnaires

support to

deregulation to deregulation

Below 22

years =

2% and

MSc/PhD/Higher

Degree 137

Above 22

year= 98

%

Respondents

passive

OND/HND 190

SSCE 63 390 380 10

SOURCE: Sample Survey, March, 2010.

Fig. 5.5.1.

Source: Sample Survey, March, 2010.

RESPONDENTS’ PUBLIC OPINION PIE CHART IN PERCENTAGE (%)

Source: Sample Survey, March, 2010.

Figure 5.5.1, table 15, and the above chart, the research sought to find out if actually,

the entire civil society agreed that the objective of deregulation of the downstream

subsector of the oil and gas industry, which is meant to include the private sector in

order to enhance efficiency in the supply and distribution of petroleum products to

the final consumers is at tained in the prevailing scenario. Thus, we could observed

from the above pie chart explicitly made it obvious that the majority of the total

number of respondents being 390, representing 30 percent, 380 respondents, being 30

percent appreciated the polic y but posited that the economy is yet to evolve its

appreciable benefits to the society. While 10 respondents, representing 1 percent were

undecided. The finding was that, the objective of the involvement of the private

sector is to bridge the gap in the s hort-fall in the products availability to the final

consumers is yet to be fully achieved in the prevailing circumstance, hence, there is

room for improvement of the implementation process in order to attain the desired

objective.

5.6. RESPONDENTS INVOLVEMENT AND ASSESSMENT OF

DEREGULATION POLICY:

Table 16: Respondent Assessment of the level of Products Availability

assessment OF THE LEVEL OF PRODUCTS AVAILABILITY ESPONDENTS’ ASTHE L OF ITY

RNDENTS’ ASSESSMENT OF THE LEVEL OF PRODUCTS AAILABILITY

RESPONDENTS’

ASSESSMENT OF THE

LEVEL OF PRODUCTS

AVAILABILITY Column1 Column2

Performance Assessment Respondents Percentage %

• Highly Adequate 480 56%
• Average Adequate 274 32%
• Fairly Adequate 90 11%
• Hardly Adequate 13 1%

Source: Sample Survey, March, 2010.

Fig. 5.6.1: Respondents’ Assessment of the level of Products Availability

Source: Sample Survey, March, 2010.

Here, the researcher sought to find out from respondents the level of supply and

distribution of petroleum produ cts in the prevailing scenario, 274 respondents,

representing 32 percent submitted that, the availability of products was Averagely

Adequate, whilst 480 respondents representing 56 percent accepted it was Highly

Adequate. The balance 90 respondents, representing 11 percent opined that the

supply of petroleum products is Fairly Adequate while 13respondents (1%) said it

was Hardly Adequ ate. The outcome is therefore noted that the majority agrees that

whether there was appreciable improvement in the participation of private investor in

the sector or not, the salient point is that there was an improvement in petroleum

products availability. This implies that deregulation of the downstream subsector has

indeed increased the level of products supply to end users. Hence, we could

categorically say, that deregulation has impacted positively as regards to availability

of petroleum products acro ss the country as against the norm in some part of the

Northern and Eastern States of Nigeria.

Table:17. Respondents’ Assessment of price increase vis-a-vis queues at petrol

stations as a result of the Removal of Government Subsidy

Column 1 Column2 Column3

Removal of Govt

Subsidy Respondent

Percentage

%

• Yes 600 67%
• No 227 27%

Undecided 30 4%

Source: Sample survey, March, 2010.

Fig. 5.6.2. Respondents’ Assessment of price increase/queues at petrol stations

as a result of the Removal of Government Subsidy

Source: Sample Survey, March, 2010.

In figure 5 .6.2, the researcher sought to find out what the response of the general

populace was, on the assertion that, although the elimination of government subsidy

has resulted in the increase of petroleum products pricing, which subsequently

eliminated queues at retail outlets thus impacting positively on the economy. From

the above graph, therefore, we could posit that majority of the total number of

respondents being 600, representing 67 percent agreed with the assertion, 227

respondents, representing 27 percent argued against, while the remaining 30

respondents, representing 4 percent were undecided or indifferent. This implies that

government revenue had been to adequately meet overhead cost of production, while

the excesses or wind -fall could be redeploy towards the development of social

amenities thereby grossly reducing the undue hardship of its citizenry as a result of

persistent queues at filling stations across the country.

Table 18: Respondents’ Assessment on the Removal of Government Subsidy,

its Positive Impact on the Economy

Column3 Column1 Column2

Positive Impact on Removal of Govt Subsidy on

the economy Respondent Percentage %

• Highly positive 240 28%
• Averagely positive 515 60%
• Fairly positive 102 12%

Source: Sample survey, March, 2010.

Fig. 5.6.3. Respondents’ Assessment on the Removal of Government Subsidy,

its Positive Impact on the Economy

Source: Sample Survey, March, 2010.

According to those fro m the other side of the divide, although the removal of

government subsidy from petroleum products has resulted to an upward movement of

prices of the products, subsequently eliminated queues at gas stations thus impacting

positively at the nation’s economy. From the above graphi cal representation, 515

respondents, representing 60 percent were Averagely Positive about the removal of

subsidy, whereas 240 respondents, being 28 percent agreed that it was Highly

Positive. The remaining 102 respondents, representing 12 percent were Fai rly

Positive about the removal subsidy by government from petroleum products. The

implication of this information is that, windfall realised from the sale of crude and

removal of subsidy will meet the cost of product and the excess will be implored

towards other socio-economic development with the availability of products, the man

hour wastage on queues at filling stations can be properly redirected gainful use.

Table : Respondents’ Assessment of Deregulation and its effect on price

volatility of Petroleum Products

Column 1 Column2 Column3

Assessment of Deregulation its effect on Price

volatility Respondent

Percentage

%

• Yes 117 13%
• No 650 75%
• Undecided 90 10%

Source: Sample Survey, March, 2010.

Fig. 5.6.4: Respondents’ Assessment of Deregulation and its effect on price

volatility of Petroleum Products

Source: Sample Survey, March, 2010.

At this junction, we sought understand what the response of the populace is, how

deregulation policy has led to price stability of petroleum products. Suffice to note,

650 respondents being 76 percent disagreed that deregulation policy has enable price

stability of products. 117 resp ondents, representing 14 percent agreed that

deregulation will control price volatility in the long -run while 90 respondents being

10 percent were onlookers or undecided. We might wish to take a look at Table 8,

Pages 188 -193, we observed that, before and in the era of deregulation in the

petroleum downstream subsector from Committee stage in 2000 to an introductory

stage in 2003 and subsequently it partial take -off stage in 2004 to 2009 (giving its

about Six years of its implementation). Nigeria has witnes sed seven (7) major

adjustments in petroleum products pricing, witnessed by eleven (11) Heads of States

in Nigeria from 1966 to 2007 (being 41 years). In these various dispensations, about

twenty-five (25) price adjustments were made. This implies that pri ces of petroleum

have been relatively stable during deregulation than pre -deregulation era, which is

against the spirit of deregulation.

Table 20: Respondents’ Opinion on various attributes to Petroleum Products

Price Volatility

Column1 Column2 Column3

Causes of Petroleum Products Price Volatility Respondent

Percentage

%

• Changes of crude price at international market 400 47%
• Impact of Saboteurs 100 12%
• Persistent Vandalization of Pipelines 130 15%
• Low capacity utilisation of existing local

Refineries 160 18%

• Interference of Govt in petroleum products

regulation even in a deregulated regime

8%

Source: Sample Survey, March, 2010.

Fig. 5.6.5. Respondents’ Opinion on various attributes to Petroleum Products

Price Volatility

Source: Sample Survey, March, 2010.

This work attempt s to find remote causes associated with petroleum products pr ice

volatility. The above fig. 5 .6.5 shows that majority of the respondents, 400 being 47

percent posited that the changes that occurred at the International market contribute

largely to petroleum products price volatility in the country. Their argument was

factored on the premise of International Price Parity (IPP) since the local

consumption petrole um products are largely based on importation, due to low

capacity utilisation of local refineries, which 160 respondents, being 18 percent as

there is high level of consumption without its equilibrium supply. While 130

respondents, representing 15 percent pointed to vandalization of petroleum products

pipelines as a negative impact and 100 respondents, being 12 percent attributed

reasons to saboteurs. The remaining 67 respondents representing 8 percent pointed to

numerous causes but mostly to that of govern ment continued interference in the

sector, through regulation policy amidst the ongoing implementation of deregulation

policy. As illustrated in the aforementioned, these are the salient causes, when

addressed will forestall sanity in the industry and subs equently transform the

economy.

5.7. IMPLEMENTATION OF DEREGULATION POLICY IN LAGOS

STATE.

Over time what government says and what she does has never been the same hence,

in this context, figure 5.3.1 to 5 .3.2 data on the effect of government ‘s modulati on

(cushion) measures, implementation o f deregulation policy, and the likely

internal/external constraints against the effectiveness of the policy, just to mention

but a few.

Table 21: Respondents’ Assessment of the impact of Government cushions

measures resulting from price increase.

Column 1 Column2 Column3

Government Cushion Measures for Price

Volatility. Respondent

Percentage

%

• Very Significant Nil 0%
• Significant 100 12%
• Fairly Significant 200 23%
• Not Significant 500 58%
• Unaware of the Measures 57 7%

Source: Sample Survey, March, 2010.

Fig. 5.7.1. Respondents’ Assessment of the impact of Government cushions

measures resulting from price increase.

Source: Sample Survey, March, 2010.

From the above figure 5 .7.1, we sought to find out how significant the cushion

measures taken by government to ameliorate the negative impact of persistent price

volatility of petroleum products on the citizenry. More of the respondents being 500

representing 58 percent said there was no meaningful significant whatsoever. While

200 respondent being 23 percent posited that it was fairly significant.

Respondents unanimously agreed that, the recommended measures by the Senator

Ibrahim Mantu’s led Independent Consolidation Committee on Cushion Measures

(ICCCM) facilitated by the Petroleum Products Pricing Regulatory Agency (PPPRA)

in 2005 by the Obasanjo government was not made public, it was implemented as the

Petroleum Support Fund ( PSF) which marketers who engage in importation refined

petroleum products are benef iting till date, but due to non accessibility to

information on how PSF is administered, it’s ther efore difficult to probe further on

the issue. While 100 respondents being 12 percent claimed it was significant, the

other 57 respondents (7%) said they were unaware of such measures. The result

therefore interpret that there is no significant impact beca use the Mantu’s Committee

recommendations was not made public, thus, it would be almost uncertain to assume

otherwise, not knowing whether the cushion policy was implemented. Sequel to the

foregoing, all respondents unanimously appreciated the gesture of t he Mantu’s

Committee, however, wish the Committee would have recommend ed no further price

hike of petroleum products. As subsequent increases had attracted various organised

labour and civil strikes.

Table 22: Respondents’ Assessment of the effect of implementation of

Deregulation Policy in Nigeria

Column 1 Column2 Column3

Implementation of Deregulation Policy in

Nigeria. Respondents’ Percentage %

• Very Effective 80 9%
• Effective 127 15%
• Fairly Effective 250 29%
• Not Effective 400 47%

Source: Sample Survey, March, 2010.

Fig. 5.7.2. Respondents’ Assessment of the effect of implementation of

Deregulation Policy in Nigeria

Source: Sample survey, March, 2010.

From the above figure 5 .7.2, the research sought to find out how effective has the

implementation of the deregulation of the downstream subsector been in Nigeria.

Majority of the respondents being 400 being 47 percent posited that the

implementation of deregulation of the petroleum downstream subsector is of no effect

in Nigeria, in the same vein 250 respondents representing 29 percent viewed the

implementation of the deregulation policy as fairly effective, the remaining 127

respondents being 15 percent argued that the policy was effective. The output result

implies that, the implementation of deregulation of the downstream subsector has not

being effective, rather it has demonstrated appreciable impact on the Nigeria

economy through wealth creation and job opportunity. The policy also triggered the

current OIL and GAS (OGIC) reform initiative and the PETROLEUM INDUSTRY

BILL (PIB) which has gone through public hearing in 2009, awaiting passage into

law. Furthermore, this situat ion suggest that, if the policy is well implemented, thus

effective, its impact will energised micro and macro economy of Nigeria in the long

run.

Table 23: Respondents opinion on possible internal constraints against

effectiveness of the policy

Column 1 Column2 Column3

Possible Internal Constraints Against Deregulation

Policy in Nigeria. Respondents’ Percentage %

• Govt continued involvement 453 53%
• insincere and partial implementation 220 26%
• lack of encouragement to potential investors 130 15%
• undecided 54 6%

Source: Sample Survey, March, 2010.

Fig. 5.7.3. Respondent’s opinion on possible internal constraints against the

deregulation policy

Source: Sample Survey, March, 2010.

Sequel to the above, we sought to find out the likely internal constraints against the

effectiveness of deregulatory policy of the downstream petroleum subsector. F rom

the above table and figure 5 .7.3, the results are as follows, 453 respondents (53

percent) argued for government continued interference through price regulation

amidst deregulation regime. In like manner were 220 respondents being 26 percent

opined that, insincerity and lack of commitment to policy implementation

government has acted as a stumbling block to the full realisation of the policy’s

objective. While 130 respondents being 15 percent argued that the lack of level

playing ground for competitors who are potential investors in the sector has caused

serious setback to the policy as monopoly wax stronger, and the deliberate refusal of

government to grant and guarantee capital base incentives such as; loan required to

execute capita based projects, guarantee adequate supply of feedstock, the absence of

tax holiday for investors, inconsistence in government policy and double standard in

Joint Venture Agreement (JVA) between government and prospective investor, lack

of basic social amenities such as power supply, water and good road network. The

aforementioned are few of these internal constraints that act as an obstacles to the

realisation of the deregulation policy of the downstream petroleum subsector. In a bid

to holistically capture the o pinion of the onlookers, 54 respondents being 6 percent

were undecided or indifferent. These attest to the obvious that, government should

muscle her political will and stick to the rules of engagement so as to make a head

way in achieving efficiency in the policy implementation.

Table 24: Respondents’ opinion on possible external constraints against

effectiveness of the policy

Column 1 Column2 Column3

Likely External Constraints Militating Against the Effectiveness

of Deregulation Policy in Nigeria. Respondents’

Percentage

%

• Labour and Civil unrest 400 48%
• Price volatility at International Market 210 25%
• Transportation (Bridging) Problems 140 15%
• Vandalization of Pipelines and Marketers’ Margin 107 12%

Source: Sample Survey, March, 2010.

Fig. 5.7.4. Respondents’ opinion on possible external constraints against

effectiveness of deregulation policy

Source: Sample Survey, March, 2010.

In the continuation to this research work, we found out that there exist external

factors militating against the effective and efficient implementation of deregulation

policy of the downstream subsector of the oil and gas industry, which were identified

as follows: 400 respondents representing 47 percent argued for Organised Labour

Union (NLC) Unrest and Militancy from the different parts of country, most

prevailing is that of the Niger Delta as one of the most predominant external factor

militating against deregulation policy; 210 respondents representing 25 percent

argued for price volatility at the International Market that is, inconsistence in prices

of crude and cost of refining products since there is high demand of products locally.

140 respondent re presenting 15 percent adduce these smiley problems to poor and

inefficient mode of transportation net work in Nigeria leading to time wastage,

financial loses and death on our high ways of poor roads’ maintenance culture. While

107 respondents representing 12 percent streamline their argument to inherent culture

of vandalism of pipeline met to transport crude petroleum products to refineries and

Marketers’ quest for higher margin/return on investment, resulting to artificial

hoarding and smuggling of produc ts to neighbouring countries for higher stake while

the domestic supply becomes erratic leading to scarcity of products (high demand

against few supply).the implication of the aforementioned is that, there is the urgent

need by all stakeholders to put mach inery in place to address the abnormally,

possibly get the local refineries to be working to compliment the imported refined

products, and government should be proactive in encourage investors to build new

refineries.

Table 25: Respondents Opinion on Possible Benefits from Deregulation of the

Petroleum Downstream Subsector.

Column 1 Column2 Column3

Possible Benefits of Deregulation. Respondents’ Percentage %

• Eradicate Waste/ Corruption 345 40%
• Efficiency/Products’ Availability 290 34%
• More Private Participation/Job

Creation 137 16%

• Eliminate Black

Market/Smuggling 85 10%

Source: Sample Survey, March, 2010.

Fig. 5.7.5. Respondents Opinion on Possible Benefits of Deregulation of the

Petroleum Downstream Subsector.

Source: Sample Survey, March, 2010.

To every socio -economic policy there is expected benefits, hence, the researcher

sought to establish the fact if there is any associated socio-economic benefits to

deregulation policy in the oil and gas sector, which ought to motivate respondents’

support for it. Although government ’s attempt was to liberalise the entire oil and gas

sector, but investor had their game plan to hijack the exercise with a view to

maximise profit at all cost whereby brin g untold hardship on the final consumer,

hence, they are i ndifferent towards the realisation of the objective of the policy.

Contrary to this view, 345 respondents representing 40 percent of the sample

population are strongly of the opinion that deregulation of the petroleum downstream

subsector will if not compl etely eliminate waste and corruption, which are the trickle

effect of belt-tightly regulated economy. 290 respondents being 34 percent belief that

deregulation policy when properly implemented will energised the micro and

macroeconomic activities, that wil l bring about enhancement of social values,

resulting to petroleum products availability and possible elimination of price

volatility in the system. In another vein, 137 respondents representing 16 percent of

the entire sample population argued that deregu lation will attract strong private

participation in the oil and gas industry giving the enabling environment of operation

thereby creating job opportunity and the emergence of Small and Medium

Enterprises, while 85 respondents representing 10 percent lend their opinion that

deregulation will eliminate smuggling, hoarding and artificial scarcity of petroleum

products. They went further to buttresses their position that on investor goes into

business with the intention not to recoup his investment, hence, he will put structure

in place to protect his investment and also maximises profit. While doing so, the

economy naturally will evolve itself into development.

The lesson to be leant is that government should engage on periodic public

enlightenment campaign, informing, and education its citizenry on the benefits of the

deregulation policy while improving on strategies and processes that will engender

the implementation of the policy.

Table 26: Views on Improvement on the Existing Local Refineries Capacity

Utilisation or Encourage the Establishment of New Refineries,

Improvement in Capacity Utilisation of

Local Column1 Column2

Refineries of Develop a New one. Respondents percentage %

• Yes 207 24%
• No 600 70%
• Undecided 50 6%

Source: Sample Survey, March, 2010.

Fig. 5.7.6. Views on Improvement on the Existing Local Refineries Capacity

Utilisation or Encourage the Establishment of New Refineries,

Source: Sample Survey, March, 2010.

Unarguably, the intention of government on deregulation of the petroleum

downstream subsector was to complement the capacity utilisation of the local

refineries, to improve and to equilibriumlised the supply of domestic demands with a

view to eliminate scarcity, and stabilise the price of petroleum products to the end

users, while encouraging the establishment of modern refineries. However, from the

graph, the reverse is the case, as 600 respondents representing 70 percent of the total

respondents disagreed (said N o), that the policy has not me t its set objectives. Their

reason was not unconnected to various periodic Turn around Maintenance (TAM)

with huge maintenance cost to improv e their capacity utilisation, all to no avail,

thereby unable to achieve their full capacity utilisat ion. They went further to argue

that, although government over time gave licences to intended investors to establish

refineries, Nigerians are yet to see tangible take-off structures on sight, their reason is

government is not living up to expectation of her bargain and insecurity (militancy) in

various part of the country. While 207 respondents being 24 percent argued in favour,

with 50 respondents representing 6% were onlookers (undecided or indifferent).

Table 27 : Respondents’ Views on the Impact of Capacity Utilisation of Local

Refineries and the need to establish New Ones for Products

Availability and Price Stability.

Opinion on the impact of Improved in

Capacity Utilisation, the establishment a one

and price stability. Column1 Column2

Respondents percentage %

• Yes 650 76%
• No 170 20%
• Undecided 37 4%

Source: Sample Survey, March, 2010.

Fig. 5.7.7. Respondents’ Views on the Impact of Capacity Utilisation of Local

Refineries and the need to establish New Ones for Products

Availability and Price Stability.

Source: Sample Survey, March, 2010.

The research deemed it necessary to find out in figure 5.6.7 if improved capacity

utilisation of existing refineries as well as the establishment of new ones would

impact positively on products availability prices stability , the greater majority of the

respondents, 650 in number, being 67 percent of the total Population Sample said yes.

This category of respondents argued that such a situation would ensure increase

domestic petroleum products supply and distribution, thereby eliminate or reduce

import parity, thus impacting positively on products availability and stabilise price.

While 170 being 20 percent argued against the process, an insignificant 32

respondents representing 4 percent were docile on the issue. The integrity of this

observation is that government should overhaul or outright sale of the all existing

refineries to investors who can resuscitate these refineries to full capacity utilisation

while setting up of new ones be in top gear so as to win the confidence of the

populace towards the realisation of the desirable objectives of der egulation of the

petroleum downstream subsector.

Table 28: Respondents View on the Effectiveness/ Implementation of

Deregulation Policy in the Oil and Gas Industry.

Views on the effectiveness /implementation Column1 Column2

deregulation policy in the Oil & Gas Industry Respondents

Percentage

(%)

• Ineffective 455 53%
• Effective 350 41%
• Undecided 52 6%

Source: Sample survey, March, 2010.

Fig. 5.7.8. Respondents View on the Effectiveness/Implementation of

Deregulation Policy in the Oil and Gas Industry.

Source: Sample Survey, March, 2010.

The above graph is to appraise the overall effectiveness of the deregulation policy

implementation in the realisation in its re-determined statutory objectives. Of the total

Sample Population of 857 respondents, 350 respondents representing 41 percent

respectively argued in a very strong term. That, from experience, the implementation

of deregulation policy has been forthcoming, but not without multifarious obstacles,

and constraints as it is not uncommon with policy of such nature in a developing

economy. While on the contrary, appreciably 455 respondents representing 53

percent argued that its implementation h ad been ineffective due to high cost of

refining petroleum products, smuggling and hoarding of products, scarcity and hand

heartedness of marketers drive for higher margin as against policy objectives. Thes e

and many more reasons that have deterred the eff icient and effectiveness of the

implementation of the policy thereby doing more harm an d further impoverish the

standard of living of people than ever before. Hence, it was observed that the policy

since its inception in 2002 till today has not fa red well as against the original

objective that necessitate d its introduction in the first instance, except the incessant

spiralling review of petrole um products pricing template, which has been abused

number of occasions. 52 respondents being 6 percent were undecided in this regard.

5.8. EFFECT OF DEREGULATION ON LAGOS STATE ECONOMY

Table 28 and figure 5.6.6 to 5 .6.1 will deal on the impact of d eregulation on the

Nigerian economy/Lagos State in perspective.

Table 29: Views on the effect of deregulation on Lagos/Nigeria economy View as

to the Impact of Deregulation policy on Nigerian/Lagos State Economy

View as to the Impact of Deregulation policy

on Nigerian/Lagos State Economy Column1 Column2

Respondents

Percentage

(%)

• Yes 375 44%
• No 440 51%
• Undecided 42 5%

Source: Sample Survey, March, 2010.V View as to the Impact of Deregulation

policy on Nigerian/Lagos State

Fig. 5.8.1. Views on the effect of deregulation on Lagos/Nigeria economy

Source: Sample Survey, March, 2010.

From all standard, it has been accepted by minority of the total respondents, 375

being 44 percent, that the policy since inception in 2002 has one way or the other

achieved the objectives of been an instrument for socio -economic change, not only in

the area of revenue generation to government, but a catalyst for real economic

growth. However, the opinion of majority of total respondents, 440 representing 51

percent disassociated themselves from the view stands of the minority respondents,

for what they attributed to endemic avalanche of power politics, mismanagement,

lukewarmness, and corruption by elite class in the implementation to really attain

policy objectives. The oth er 41 respondents representing 5 percent were undecided.

This connote that, it takes more commitment to execute policy than initiating. It is not

uncommon that no matter how laudable an d promising a policy might seem in

Nigeria, it has become part of our s tructural system that that policy will not be

implemented without some obstacles or set -backs. Having streamlined these

obstacles all that is needful is for government to nip these obstacles on the board and

muscle political will to forge ahead.

Table 30: Respondents’ View on the achievement of Deregulation Policy as

facilitator of the sector for socio-economic change in Nigeria.

Source: Sample Survey, March, 2010.

Deregulation as facilitator of the

sector Column1 Column2

For socio-economic change in Nigeria. Respondents

Percentage

(%)

• Agreed 306 35%
• Disagreed 520 61%
• Undecided 31 4%

Fig.5.8.2 Respondents’ View on the achievement of Deregulation Policy as

facilitator of the sector socio-economic change in Nigeria.

Source: Sample Survey, March, 2010.

The minority of the total respondents, 306 representing 35 percent agreed that the

deregulation policy since inception, has attained it s set objectives as a facil itator of

socio-economic change and deregulation remains a catalyst for real economic growth.

Notwithstanding, majority of the respondent s, 520 respondents, representing 61

percent disassociated themselves from the view held by the minority groups (306

respondents). Their reasons for such stand was attributed to prevalent madness of

power politics among political elite class, misappropriat ion of crude oil windfall, and

corruption by policy implementers to attain its set goals. This implies that the policy

itself is a global phenomenon, but the implementation of the policy so far has not

been very commendable to achieving the set objectives and benefits from its

dividends.

Table 31: Respondents’ View on Policy Giving Equal Level Playing Ground

to Stakeholders in the Oil & Gas Sector

Deregulation Giving Equal Level Play Ground to Stakeholders in

the Sector. Column1 Column2

Respondents

Percentage

(%)

• Agreed 354 41%
• Disagreed 480 56%
• Undecided 23 3%

Source: Sample Survey, March, 2010.

Fig. 5.8.3. Respondents’ View on Policy Given Equal Level Playing Ground to

Stakeholders in the Oil & Gas Sector

Source: Sample Survey, March, 2010.

The researcher tend s to ascertain from respondents to what extent has deregulation

policy given equal level playing ground to Stakeholders in the downstream subsector

of the oil and gas industry. Hence , the above figure 5 .8.3, respondents establishes

their

various opinions i n this regard; that the policy has not given equal level play ing

ground to investors mostly Nigerians contrary to the expected objectives of the

policy. Following our oral interview with some of the respondents, it was obvious

that since the inception of the policy in 2002, there has not been entry of new

participants, thus, providing little or no access to state of the art technique in the oil

and gas business deals, management, technical know -how and modernisation as

depicted in the petroleum downstream subsector of the oil and gas industry. Its data

was decided up on by a large population sample under study, which is 480

respondents being 56 percent. At this instance, it should be realised that the policy is

to showcase the relevance of deregulation in bringing lasting solutions to the current

crises (scarcity, hoarding, smuggling, price volatility, products round -tripping etc)

experienced in the commercial arm of the oil and gas sector, with the sole aim to

opening up the downstream sub sector, creating enabling environment that enhance

return on investment to investor, and creating level play ing ground for competitors

that will eliminate monopoly class structure, which on the long run will grossly

improve the supply and distribution of petroleum products. However, the opposite

seems to be what consumers are getting in all these year s that the policy has been

practised. Suffice to note herewith, that private investor at the UP STREAM

(Refinery Operators) seems to be exercising fear and wo rries about their investment

since the advent of deregulation policy due to absence of free level play ing ground in

the industry, particularly where refining business slated for privatisation, are still

resided in the hands of government. While 354 respond ents representing 41 percent

completely disassociated themselves from the above claim and posited that the policy

has been fair to all stakeholders within the sector, as 23 respondents being 3 percent

were in different. This implies that, deregulation policy ought to induce fair margin or

returns on investment for investors as a platform for the on -going investments

initiatives, operation to International Health, Safety and Environment standards.

Table 32: Respondents’ View on Deregulation Policy as a Motivating Factor to

increase Economic Activities in Nigeria.

Deregulation Policy as a Motivating Factor to increase

Economic Activities in Nigeria. Column1 Column2

Respondents

Percentage

(%)

• Yes 650 76%
• No 190 22%
• Undecided 17 2%

Source: Sample Survey, March, 2010.

Fig. 5.8.4. Respondents’ View on Deregulation Policy as a Motivating

Factor to increase of Economic Activities in Nigeria.

Source: Sample Survey, March, 2010.

Giving the total respondents of 857, a large proportion of 650 respondents

representing 76 percent agreed that the policy would serve as motivating factors to lip

frog socio-economic development in the country. They posited further, that the policy

if not intercepted would bring prompt response to changing circumstances without

political intervention within the sector. A proportion of 22 percent being respondents

denied such claims on the basis of improper implementation of deregulation policy.

This infers that, much would be achieved in the system if the policy implem entation

is holistically executed without political prejudice. The remaining 2 percent of 17

respondents were undecided to which ranks they would belong to. The implication is

that, due to improper implementation of the policy, its impact as motivating factor for

economic development remains a mirage.

Table 33: Respondents’ View on Deregulation Policy as a tool for Expanding

Productivity Capacity of the Economy of Nigeria.

Respondents’ View on Deregulation Policy as a tool for

Expanding Productivity Capacity of the Economy of Nigeria. Column1 Column2

Respondents

Percentage

(%)

• Yes 553 65%
• No 260 30%
• Undecided 44 5%

Source: Sample Survey, March, 2010.

Fig. 5.8.5. Respondents’ View on Deregulation Policy as a tool for

Expanding Productivity Capacity of the Economy of Nigeria.

Source: Sample Survey, March, 2010.

The researcher sought to further confirm the reliability of the assumption tha t,

deregulation policy can be used as a tool for the expansion of productivity capacity of

the Nigerian economy. Representing the larger proportion of respondents, 553

respondents represent 65 percent say yes to the assertion that, deregulation policy will

expand economic productivity in Nigeria. As against 260, being 30 percent who

declined to such assertions, while 5 percent of 44 respondents were indifferent. This

argument was founded on the premise that: deregulation will bring about market

diversification and ensure consumer friendliness. The policy means more money will

be available for government to fund social developmental programmes that will

engender job opportunity, enthrone transparency, accountability and eliminate

corruption in the industry. From the above scenario, deregulation can only trigger

economic act ivities if well implemented. The implication of this assertion is that,

deregulation in this sector is capable of expanding the product ive capacity in order to

stimulate economic growth of the country.

Table. 34: Respondents’ View on Excessive Control of Government

Functionaries and other internal factor affecting the implementation

of the Policy.

Excessive Control of government functionaries and other internal

factor affecting the implementation of the Policy Column1 Column2

Respondents Percentage (%)

• Yes 680 79%
• No 162 19%
• Undecided 15 2%

Source: Sample Survey, March, 2010.

Fig.5.8.6. Respondents’ View on Excessive Control of Government Functionaries

and other internal factor affecting the implementation of the Policy.

Source: Sample Survey, March, 2010.

It is obvious, from the above graph that the implementation of deregulation policy is

highly determined and influenced by government control and actions, that is, fund

inefficiency, managerial control and many other features, as argued by a significant

proportion of respondents, 680 respondents, and being 79 percent of the total

respondents. Going by statistical investigation of the deregulation policy and its

performance, the Nigerian National Petroleum Corporati on (NNPC) has constantly

remained an unchallenged monopolist, which the policy sought to un bundle, is sti ll

very formidable in the oil a industry. With the Corporation still accounting for about

90 percent of imported petroleum products for local consumption, this attributed in

no little measure to the perilous fuel scarcity face by consumers in the country. From

the other side of the divide, 162 respondents, being 19 percent expressed a contrary

view on the subject matter, while 2 percent, being 15 respondents were undecided.

These observations imply that, until the widely spread tentacle of the monopolistic of

NNPC is broken or dismembered in the area of its involvement in products supply

and distribution of both local and imported products, the expected benefi ts of

deregulation will remaine a mirage.

Table 35: Respondents’ View on the need to redesign the Oil & Gas policy

effective implementation to attain its statutory Objectives

Respondents’ View on the need to

redesign the Oil & Gas policy effective

implementation to attain its statutory

Objectives. Column1 Column2

Respondents

Percentage

(%)

Yes 785 92%

No 72 8%

Undecided 0 0%

Source: Sample Survey, March, 2010.

Fig. 5 .8.7. Respondents’ View on the need to redesign the Oil & Gas policy

effective implementation to attain its statutory Objectives

Source: Sample Survey, March, 2010.

Majority of the respond ents, which is 785 respondents being 92 percent argued in a

strong and vigorous manner, that in this ongoing globalisation of economic reforms,

the best alternatives for any developing economy is for government to integrate

herself into the global reform initiatives, an overview of the obsolete legal framework

for the Nigeria n oil and gas to meet up with the 21 st century challenges of

deregulation policy, and to stabilise supply to meet up with domestic demand while

comparatively synchronising reducing cost of refining products locally. The reverse

was the case of 8 percent of 72 respondents whose opinions negate the opinion of the

modern 780 respondents who are in touch with the principles of modern economics

challenges. The ‘‘No’’ respondents’ argued further, that the policy should not be

redesigned rather it should be given all it takes to ensure its effective implementation.

The implication is that, for policy to meet global expectations and enhance economic

growth, the implementation strategies of the policy should periodically be reviewed,

redesigned and appraised for greater impact to be achieved.

Table 36: Respondents’ View on Measures to be taken for the Eradication of

the observed Problems Associated with Policy Implementation

Respondents’ View on Measures to be

taken for the Eradication of the

observed Problems associated with

Policy Implementation

Respondents

Percentage

(%)

• Establish a Price Ceiling 330 39%
• Well formulated & proper

implementation 260 30%

• Public enlightenment & equal

opportunity 210 25%

• Qualified Personnel 57 6%

Source: Sample Survey, March, 2010.

Fig. 5.8.8. Respondents’ View on Measures to be taken for the Eradication of

the observed Problems Associated with Policy Implementation

Source: Sample Survey, March, 2010.

Giving the above sample survey, 330 respondents being 39 percent of the total

respondents agreed that a price ceiling should be introduced as products benchmark

into the Petroleum Products Pricing Regulatory Agency’s (PPPRA) template , and

there should be proper management of revenue (windfall) gotten from the exercise.

260 respondent representing 30 percent opined that, every policy designed by

government should be well supervised and properly implemented. For deregulation

policy to have its desire impact, 25 percent of 210 respondents posited that

government should lay more emphasis on adequate public enlightenment, showcasing

policy aims and objectives, and given citizens equal opportunity to participate in th e

entire exercise for general economic benefits. The remaining 5 7 respondents being 6

percent recommended the recruitment of skilled resource personnel would add value

to the oil and gas industry for the sake professionalism and proficiency in the

industry.

Giving the above analysis on the population sampling data collated, the study has

revealed contrary to prevailing knowledge that deregulation has rather produced

stability in price and supply instead of the market fundamental determining the price

and supply of petroleum products in the economy. Despite some of the existing gains

that the policy undeniably achieved, it is important to state at this juncture that

deregulation of the downstream subsector of the oil and gas development is an

outcome of interactions between socioeconomic and political re inforces in ways that

can improve the deprivation of the welfare of the citizenry. Effective policy

implementation is embedded on national development, which will lead to the

attainment of its corporate objectives. Furthermore, the ineffective implementation

of the policy translates to deliberate refusal or denial of the much -required results to

move the economy forward. Abandonment, corruption, discontinuity, ill-formulated,

and unfairness, et cetera, just to mention by a few of these features that charac terised

the Nigerian public policy formulation and it s implementation which ought to be

resolved, thereby creating enabling platform for the effect ive take-off of the

deregulation policy has remain ed the missing -gap in the attainment of the policy

objectives. An understanding and appr eciation of the deregulation policy, just like

previous policies in the past (National Development Plans of the 70s, Structural

Adjustment Programme (SAP) of the 80s, Fi nancial Regulation (Failed Bank

Tribunal) of the 90s et cete ra) and institutions that le d to sustainable socio -economic

and political development is a first step in developing strategies to improve the lots of

the citizenry. Hence, for any meaningful and t angible impact to be acknowledged in

the oil and gas downstream subsector, and to ameliorates the suffering of the

populace as caused by ineffective implementation of the policy, drastic steps should

be taken by government to embark on progressive deregul ation, where its

implementation will be gradual but consistently midwife by an established

programme of government disengagement from the oil and gas business, while

allowing private participant into sector and manage its activities.

CHAPTER SIX

SUMMARY, CONCLUSION AND RECOMMENDATIONS

6.1. SUMMARY

This study critically appraised the effect s of government deregulatory policy of the

downstream petroleum subsector on the Nigeria economy. It examined most existing

problems that attracted government intervention and attention towards the adoption

of deregulation policy which was meant to open up the downstream subsector for

private participation in a bid to eliminate monopolistic activities , improve the

availability of petroleum products/ better service delivery , eliminate all forms of

bottle-necks usually experienced in the sector, hence, the adoption of cushioning

mechanism (subsidy) of petroleum pump price.

In a bid to bridge the supply gap and p rice volatility, government had spent about

N2.6 trillion in subsidising petroleum products between 2006 -2009 while 2010

budgetary provision has about N3.5 trillion respectively. Overtime, various

government policies in Nigeria have consistently failed to achieve their respective

statutory objectives at various stages of implementation. The deregulation policy of

the petroleum subsector, as it connotes, has suffered a lot of set -backs as a result of

inefficiency, ineffectiveness, colossal waste due to hyper-corruption that will buttress

any meaningful positive changes in the sector vis -a-vis the policy objectives. Hence,

there has been stronger demand for its implementation, discouraging government

involvement and its absolute control of the sector.

This study has subsequently and emphatically exposes the empirical determinant

factors that snowball the significant correlation between the deregulation policy of

downstream subsector of the oil and gas sector, take -off-stage of the policy, and its

holistic impact on national development. Deregulation policies among others, is that,

deregulation economic policies will attract investors into the oil and gas sector and

engender competition that will in turn ensure availability of petroleum products to the

final consumers in an uninterrupted manner, with a view to eliminate

waste/corruption associated with the sector which are attributes of a tight regulated

economy and to ensure return on investment to investors to enhance soc io-economic

growth of the nation.

Furthermore, this study brings to bear the economic model of a “rational man” and

how the model legitimizes prevailing public policy. “Rational man” supposedly

weighs the important, known variables and then makes that d ecision which is most

likely to achieve the desired end (the greatest “utility”). Thus, we can say that public

policy is founded on the notion that people calculate the utility of each decision,

somewhat like a computer.

But modern cognitive science has s hown that people do not make decisions by

calculating the utility of each decision. Thus, economic “rational man” is a fraud that

leaves the public exposed to ongoing economic and political exploitation by

government organs. Moreover, this fraud provides e conomists and political leade rs

with effective moral cover.

Nevertheless, it was observed that deregulation policy of the downstream petroleum

subsector has grossly relieved the government of the financial yoke def icits in a bid

to conserve the accrued funds from local and foreign exchange out flow for social

structure development. The policy has undoubtedly triggered the efficiency of

national economy and enhanced the volume of communal expenditure to the national

treasury.

From the above analysis, de regulation policy has not fully be en implemented neither

has it attained its statutory objectives, but in the long-run, if fully implemented, it will

propel the economy for sustainable growth and development. Hence, its modest

contribution is to uplift individual standard of living of the citizenry.

6.2. CONCLUSION

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 irrespective of

the attention paid to these problems over the last forty years. It is correct to state here

that some 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 es’ have been insignificant in the context of traditional

development economics.

There are examples of countries where the orthodox prescriptions failed to improve

the performa nce of the economy in terms of g ross dom estic product (GDP) growth

rate, even in countries where respectable growth rate are actualised. But 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 me aningful

economics development. The achievement of economic growth without development

in some developing countries especially during the past three decad es (1960s to

1980s) led to disenchantment with the received theories of economic development .

The later part of the 1980s marked the end of optimism in Nigeria, especially political

economists and policy makers; it became clear that the problem of t he country

(Nigeria) was not qui te understood as there was neglect of economic features in

policy implementation.

Olusegun Obasanjo’s Administration was of strong will to reform the petroleum

subsector and the unbundled of all logistic facilities for private participation in the bid

to attaining sustainable economic growth.

Following the establishment of a regulatory agency (Petroleum Product Pricing

Regulatory Ag ency) in May 2003 which had the responsibility of determining

appropriate product pricing, supply and distribution of products across the country.

But government formulates and executes Policy on oil and gas in Nigeria, in order to

formulate beneficial policy that is defensible and tenable to the citizenry and

government to have respect for mac roeconomic features. The reverse is the case as

deregulation of downstream is more of politics rather than economic theories.

It is therefore, obvious that polici es are initiated in Nigeria without a corresponding

achievement. The adoption of deregulation of the downstream petroleum subsector

like any other policy is a coin economic terminology (Perfect Market,) where

government hands off the contr ol of pricing commodities in ord er to allow

participants into the market where prices are determined by market fundamentals

such as: crude oil price; exchange rate; freight rate; refining economics, bridging

cost. Others are the forces of demand and supply which acts as a function of the

automatic pricing mechanism capable of triggering competition and efficiency w hich

could drive prices downward in the long run within the existence of macroeconomic

indices which includes the determination of the short -run level of national output

without presuming instant price and wage flexibility: getting financial markets,

interest rate and monitoring policy and how they affect output and employment

which is being determined by the National income a ccounting principle (measuring

gross domestic product) produced by existing factors of production located in the

domestic economy regardless of who owns these factors. The deregulation policy has

the potentials to contribute adequately in bringing the nation’s economy to a mat urity

stage as adduced by W.W.Ro stow, where there is significant improvement on the

supply, distribution and service delivery.

However, within the short span of operation, and the huge investment it has attracted

into the sector, its implementation has not met the desirable objectives in the area of

adequate supply of petroleum products as against the huge demand o f same as

revealled by the findings. Petroleum products remain the major sources of energy in

Nigeria and a determinant factor for the success of global economic growth, and its

availability or not, determine the level of economic activities. This is basically so

because Nigeria economy is a ‘’Generator Driven Economy’’ thus, most Small and

Medium Scale Enterprises (SMS) and industries in the country depends largely on

petroleum products (PMS) in the usage of generator plants, and the absence of it, puts

the business in jeopardy therefore, having adverse negative impact on the macro

economy.

In light of the above, it is worthy to note that deregulation policy is initiated and

implemented open up the downstream subsector of oil and gas to unbundle all

monopolist structure to a free and fair level play ground of all competitors in the

sector with a view to improve products supply and service delivery. Suffice to state at

this juncture that the reverse seems to be what consumers is confronting with all these

years of policy implementati on. It will be elusive practice for government t o totally

hand-off the sector, owing to the fact of its transfer of ownership of its infrastructural

facilities (refineries and logistic facilities) to private participants. Hence, it is needful

to inject the setting of clear objectives for such policy to b e able to permit the

usefulness of the implementation of the policy to attain its corporate objectives.

It has been generally recognize d that, ineffectiveness, misappropria tion,

discontinuity, and mismanagement of its scar e earned resources and misplacement of

corporate goals flawed the nuisance of the Nigerian public policy initiative such as

the deregulation policy of the downstream petroleum subsector. And for government

to be seen as being administrative competent, there must be a significant confirmation

of government trying to close up the gap between the objectives of this policy as

enumerated earlier on and the definite achievement attained by the policy. However,

there has being structural and institutional defects that acted as barriers against the

realisation of this policy, these barriers are human factor, hence they require human

elucidation. Recommendations would therefore be with aim to redirect and refocus

the implementation of the policy towards the realisation of effective and efficient

supply and distribution of petroleum products, efficient service delivery, price

comfortability and the upliftment of the populace welfare vis -a-vis national income

development.

6.3. RECOMMENDATIONS

When a small percentage of the population chooses to drive fuel -efficient

automobiles, and a large percentage drives inefficient fuel vehicles, every barrel of

oil saved by the efficient group is ultimately consumed by the less inefficient group.

In fact, the net effect of the conservation will be to lower the price pressure on the

inefficient consumptions, and this makes such consumption more desirable in

economic terms.

Even the idea of a fuel -efficient automobile is an oxymoron (non -existence in more

practical terms). The theoretical maximum thermodynamic efficiencies for an

automobile is roughly 25 perce nt, while the true efficiency of fuel propel engines is

much lower, perhaps as low as 7 percent in some cases. This means that every time

you fill your fuel tank, only about one litre of fuel is actually converted into e nergy

that moves the car along, while t he rest of the fuel is converted into heat. Suffice to

state that those who choose to stay at home in order not to consume energy have a

significant global impact.

Therefore, it is likely that no individual effort will be able to resolve the problem

associated with world energy resource consumption , only global solutions involving

agreements between all world energy consumers and strict enforcement wil l have a

significant impact on world energy problems. Furthermore, p etroleum economists’

belief in the existence alternatives source of energy to crude oil, but they st ill

maintained that, crude oil among all sourced alternative remains the cheapest

globally.

From the aforementioned, it is obvious that certain action s need to be put in place in

view of the experience so far. This is to allow the deregulation policy to be

effectively implemented , sustained and maintain ed in view of its statuto ry

responsibility to the economic reforms in the country. In scrutiny of the findings, the

recommendations below are therefore made to government and all stakeholders

within the confines of the oil and gas downstream subsector in anticipation that they

would be considered for implementation with a view to achieving the co rporate

objective of the policy, thus:

• To avoid policy deficiency, the implementation process should be tactically

approached with maximum flexibility taking into cognisance of the fact that

many assumptions/probabilities characterise policy formulation techniques and

that there is no definite end to policy implementation. As such, the take -off

stage of the policy should be implemented in a gradual manner until the public

begins to appreciate its viability and the conviction of the policy positive

impact before implementing deregulation itself.

• Policy implementers should establish a firm linkages with key segment of the

society, and ensure that its decision enjoy the widest possible understan ding

and support

• The National Assembly should expedite the passage of the Petrol eum Industry

Bill (PIB) and the implementation of the oil and Gas Industry Committee’s

(OGIC) Report for the implementation of structural reform in the petroleum

sector;

• Government should discontinued the subsidization of petroleum products

through the Petroleum Support Fund (PSF) current administered by PPPRA

and redirect same to social development such as; provision of portable drinking

water, electricity, health care service s, education, and rehabilitation of roads

across the country;

• Considering the position and role the petroleum economic plays in the Nigeria

economy as a major source of revenue in Nigerian, government should create a

level playing ground for investors to be able to invest in logistic facility and

moderate volatility in petroleum products prices, while ensuing reasonable

returns to operators;

• Government to put in place stringent measure to curtain the activities of

petroleum pipeline Vandals; affecting the volume of crude oil production, the

inability to commission completion power plants and unable to distribute

petroleum products to power stations across the country;

• Government should put in place mechanism that will accurately determine t he

consumption level of petroleum in the country and sustainable supply and

distribution plan;

• That government should rehabilitate existing downstream infrastructure

including pipeline and stor age facilities for smoother operation of industr y

operators and that government should dredge the jetties in other to allow bigger

vessels berth while g overnment provide adequate security network to protect

investment of investors.

• Absence of supporting import structure (Inadequate Port Facilities) of the ports

and existing import reception facilities are not designed to handle current

levels of product import volumes. Hence, Supply infrastructure is plann ed to

be mostly inland -focused i nadequate Port facil ities lead to attendant (but

significant) distribution costs like demurrage and lightering expenses.

It should be made known at this junction that in many developing countries;

structural reform of petroleum market has becom e a critical component of

macroeconomic liberalization policies. The role of Government in the petroleum

sector should be redefined while marketer should play by the ethics of business

morals.

Deregulation no doubt has increased private pa rticipation leading to a competitive

petroleum marketing, government should work toward the refurbish ing of its major

reception depo ts distribution and storage facilities, refurbishment and purchase of

haulage trucks, improvement of retail outlets and the resuscitation of moribund rail

system for produc ts haulage. When these are properly looked into, it will trigger

industrial revolution in the petroleum downstream sector. With the emergence of

multibillion Dollars private downstream operators such as Cono il Plc, Zenon oil,

OBAT PLC etc, t he downstream s ubsector of the oil and gas is gradually been

developed creating wealth and employment.

The ‘‘Mobocratisation’’ of democracy can truncate the existence of good governance

by few elites in the bid to use economic might to dismember the ongoing reform

programme of the government regime. The government must also keep in mind that

the Nigerian society has diverse socio -cultural heritage; we must be respected whi le

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 the instance

of deregulation. There are little sacrifices to be made in order to attain full economic

development, that is, pay in for economic goods, with an agenda to exploit the mass.

We must not forget the experience of the now known Asian Tigers, they we re of no

economic might in early 70’s, but today because of socio -political discipline, they

determined world trade and a political voice to be reckoned with globally. Whether it

is price parity, removal of subsidies or not, the truth is that, no developed economy of

the world is Government driven, rather private participation. This implies that, for

Nigeria to maintain her voice in the community of nations, she must have a strong

economic base, this can only be achieve d through better governance, repositioning of

the economy, sustainability of democratic government better per capital income

growth in GDP reduction of unemployment rate to the bearrest minimum and a better

standard of living where infrastructure are put in place, maintained and sustained.

In conclusion, the three tier s of government should seek for alternative to oil when

conventional oil begins depletion the following alternative energy options may be

increasingly relied upon to meet the world’s energy needs. These are the non –

conventional oil, separated from conventional or traditional oil (crude); these are tar

sands, oil shale, ethanol and bitumen. There are large quantities of these non –

conventional energy sources across the country and the globe estimated as much as

two-thirds of total g lobal oil deposits. At the risk of being misunderstood,

deregulation policy, is the best option for effective performance of the industry. The

problem as identified in our findings is not the policy per say, rather its implantation

strategies. Introducing deregulation based imported refined products is a primitive

way of doing things in modern times. The only possible way out of this quagmire is

to guarantee adequate and sustainable supply and distribution of petroleum products,

through increase in refining capacity utilisation of the Nigerian refineries.

What is needful of these circumstances is a careful amalgamation of all the options

that have been canvassed and rejected, while making concerted efforts to build new

refineries to compliment the former an d the fall-out of the subsidy is channel led into

developmental project for socio-economic enhancement of Nigeria and for Nigerians.

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APPENDIX 1

QUESTIONNAIRE

DEPARTMENT OF POLITCAL SCIENCE,

NASARAWA STATE UNIVERSITY,

KEFFI.

EFFECT OF GOVERNMENT’S DEREGULATION OF THE DOWNSTREAM

PETROLEUM SUBSECTOR ON THE ECONOMY OF LAGOS STATE,

NIGERIA. 1960-2007.

Dear Respondent,

As part of my research studies for PhD in Political Economy, l am currently carrying

out a study on the aforementioned. Hence the purpose of the questionnaires is to

assist the researcher to obtain necessary information regarding the research topic.

I would lik e to give you most assurance, that all information provided through this

questionnaire would be held with utmost confidentiality and used for this research

purpose only. Sequel to the forgoing, you may wish not to indicate your Name or

Signature.

Please, accept my fraternal regards.

STEPHEN LAZI AKHERE

MATRIC. NO.NSU/SS/038/PHD/2006/2007

INSTRUCTION

Tick as appropriate and provide the answer to the best of your knowledge.

1. Age:

a. Below 22 years old ( )

b. 22 years and above ( )

1. Educational qualifications

a. Primary/FSLC ( )

b. SSCE ( )

c. OND/HND ( )

d. Master/PhD/ Higher Degree ( )

1. Marital Status

a. Single ( )

b. Married ( )

c. Others ( )

1. Indicate below if a Stakeholder/Marketer/User or only user of petroleum products?

a. PENGASSAN ( )

b. NUPENG ( )

c. Oil Companies ( )

d. Marketer ( )

e. Public User only ( )

1. “The involvement of the private sector so as to create efficiency and guarantee

products availability to the final consumers”. Has this object met in the prevailing

circumstances?

a. Achieved ( )

b. Undecided ( )

c. Not achieved ( )

1. How adequate is the availability of petroleum products in the cu rrent era of

deregulation of the petroleum downstream sector?

a. Highly Adequate ( )

b. Averagely Adequate ( )

c. Fairly Adequate ( )

d. Hardly Adequate ( )

1. Do you agree that the removal of Government subsidy has resulted to products

price increase but has eliminated queues at petrol stations and i mpacted positively on

the nation’s economy?

a. Yes ( )

b. No ( )

c. Undecided ( )

1. How positive is the effect on the removal of Government subsidy which has

resulted to the increase of prices of the products but has eliminated queues from

filling stations across the country?

a. Highly positive ( )

b. Averagely positive ( )

c. Fairly positive ( )

1. Has the deregulation of the petroleum downstream subsector led to the stability of

products prices?

a. Yes ( )

b. No ( )

c. Undecided ( )

1. What are the likely causes to petroleum products price volatility?

a. Change of price at the international market ( )

b. Impact of saboteurs ( )

c. Impact of vandalization of pipelines ( )

d. Unproductive state of the local refineries ( )

e. Other, specify…………………………………………………………………..

1. The frequent increases in the prices of petroleum are usually greeted with labour

and civil society unrest, compelling the government to set up a committee to suggest

cushion measures (Petroleum Support Fund (PSF). How significant has the measures

on the economy and people?

a. Very significant ( )

b. Effective ( )

c. Fairly effective ( )

d. Not significant ( )

e. Unaware of such measures ( )

1. How effective is the implementation of deregulation in Nigeria economy?

a. Very effective ( )

b. Effective ( )

c. Fairly effective ( )

d. Not effective ( )

1. In your own opinion, what are the likely internal constraints against the

effectiveness of the deregulation policy of the downstream petroleum subsector?

a. Lack of encouragement to potential investors ( )

b. Insincere and partial implementation ( )

c. Government’s continued involvement ( )

d. Others specify. ………………………………………………………………

…………………………………………………………….

1. In your opinion, what are the likely external constraints against the effectiveness

of the deregulation policy of the petroleum downstream sector?

a. Labour and Civil unrest/militancy ( )

b. Change of prices at international market ( )

c. Transportation problems ( )

d. Pipeline vandalization and Marketers’ ( )

1. In your opinion, what are the likely benefits to be derived from the deregulation

policy of the petroleum downstream sector?

a. Eradicate waste and corruption ( )

b. Efficiency and availability of products ( )

c. More private participation /job opportunity ( )

d. Eliminate black market operators ( )

1. Has the deregulation of the petroleum downstream subsector improved the

capacity utilisation of existing local refineries or encourage the establishment of new

ones?

a. Yes ( )

b. No ( )

c. Undecided ( )

1. How effective or ineffective is the implementation of the deregulatory policy.

a. effective ( )

b. ineffective ( )

c. Undecided ( )

1. Has the deregulatory policy of any effect on the Nigeria Economy

a. Yes ( )

b. No ( )

c. Undecided ( )

1. Do you agree that deregulation of the downstream petroleum subse ctor has

achieved the set objectives of being an accelerator of socio -economic change in

Nigeria?

a. Yes ( )

b. No ( )

c. Undecided ( )

1. Do you agree that deregulation policy have giving equal level -play-ground to

stakeholders in the petroleum downstream subsector in Nigeria?

a. Agreed ( )

b. Disagreed ( )

c. Undecided ( )

1. Do you agree that deregulation as a motivate factor, has influence economic

activities positively in Nigeria?

a. Yes ( )

b. No ( )

c. Undecided ( )

1. Do you agree with the opinion that deregulation can expand the productive

capacity for economic development of country?

a. Yes ( )

b. No ( )

c. Undecided ( )

1. In your opinion, are excessive ministerial control and other internal factor

affecting the effective implementation policy of the deregulation policy?

a. Yes ( )

b. No ( )

c. Undecided ( )

1. Are you of the opinion that deregulation policy be re -appraised and redesigned

for effective implementation to attain its pre-determined objectives?

a. Yes ( )

b. No ( )

c. Undecided ( )

Thank you for your cooperation, please.

Appendix 2

PETROLEUM

INDUSTRY BILL

(PIB)

AUGUST 2008.

APPENDIX 3

CURRENT STATUTORY TEMPLATE FOR FOUR PETROLEUM WHITE

PRODUCTS (PMS, HHK, AGO, ATK).

a. Reviewed PPPRA PRODUCT PRICING TEMPLATE PMS

Based on Average Platts’ Prices for the month of February,2010

Average Exchange Rate of the NGN =N= to US$ for the Month of February, 2010

PMS

$/bbl $/MT Naira/Litre

Daily PLATT’S Movement (FOB BARGES)

0 Cost of Crude (Brent Dated) 71.57

1 FOB (NWE) October,2009 710.98 80.66

2 Freight Rate 51.80 5.88

3 Lightering Expenses (SVH) 33.66 3.82

4 NPA 10.50 1.19

5 Financing (SVH) 17.92 2.03

6 Jetty Depot Thru’ Put Charge 7.05 0.80

7 Storage Charge 26.44 3.00

8 Landing Cost 858.35 97.38

Distribution Margins :

9 Retailers 40.55 4.60

10 Transporters 24.24 2.75

11 Dealers 15.43 1.75

12 Bridging Fund + MTA 34.82 3.95

13 Admin Charge 1.32 0.15

14 Total 116.35 13.20

15 Total Cost 974.70 110.58

16 **Ex-Depot 492.73 55.90

17 Under/Over Recovery (45.58)

18 Taxes

Highway

Maintenance –

Government Tax –

Import Tax –

Fuel Tax –

19 Retail Price 572.94 65.00

Data is as at 12/02/10

Expected Open Market Price (OMP) (Naira/litre) is Landing cost +Margins 110.58

**Ex Depot includes Bridging Fund, Marine Transport Average (MTA) & Admin. Charge

Conversion Rate (MT to Litres): 1341

Exchange Rate (N to $): 152.14

b. Reviewed PPPRA PRODUCT PRICING TEMPLATE HHK

Based on Average Platts’ Prices for the month of February,2010

Average Exchange Rate of the NGN =N= to US$ for the Month of February, 2010

HHK

$/bbl $/MT Naira/Litre

Daily PLATT’S Movement (FOB BARGES)

0 Cost of Crude (Brent Dated) 71.57

1 CIF (NWE) October,2009 646.25 79.80

2 Freight Rate 51.80 6.40

3 Lightering Expenses (SVH) 31.67 3.91

4 NPA 10.50 1.30

5 Financing (SVH) 20.81 2.57

6 Jetty Depot Thru’ Put Charge 6.48 0.80

7 Storage Charge 24.29 3.00

8 Landing Cost 791.80 97.78

Distribution Margins:

9 Retailers 37.25 4.60

10 Transporters 22.27 2.75

11 Dealers 14.17 1.75

12 Bridging Fund + MTA 31.99 3.95

13 Admin Charge 1.21 0.15

14 Total 106.89 13.20

15 Total Cost 898.70 110.98

16 **Ex-Depot 331.21 40.90

17 Under/Over Recovery (60.98)

18 Taxes

Highway Maintenance –

Government Tax –

Import Tax –

Fuel Tax –

19 Retail Price 404.90 50.00

Data is as at 12/02/10

Expected Open Market Price (OMP) (Naira/litre) is Landing cost +Margins

110.98

**Ex Depot includes Bridging Fund, Marine Transport Average (MTA) & Admin. Charge

Conversion Rate (MT to

Litres): 1232

Exchange Rate (N to $): 152.14

c. PPPRA PRODUCT PRICING TEMPLATE AGO

Based on Average Platts’ Prices for the month of February, 2010

Average Exchange Rate of the NGN =N= to US$ for the Month of February, 2010

AGO

$/MT Naira/Litre

1 C + F 646.18 84.46

2 Lightering Expenses (SVH) 30.40 3.97

3 NPA 10.50 1.37

4 Financing (SVH) 3.44 0.45

5 Jetty Depot Thru’ Put Charge 6.12 0.80

6 Storage Charge 22.95 3.00

7 Landing Cost 719.59 94.05

Distribution Margins

8 Retailers 35.19 4.60

9 Transporters 21.04 2.75

10 Dealers 13.39 1.75

11 Bridging Fund + MTA 30.22 3.95

12 Admin Charge 1.15 0.15

13 Total 100.99 13.20

14 Total Cost 820.58 107.25

15 **Ex-Depot 719.59 94.05

16 Taxes

Highway Maintenance –

Government Tax –

Import Tax –

Fuel Tax –

17 Retail Price 820.58 107.25

Data is as at 12/02/10

107.25

**Ex Depot includes Bridging Fund, Marine Transport Average (MTA) & Admin. Charge

• C+F price is Offshore Nigeria

Conversion Rate (MT to

Litres): 1164

Exchange Rate (N to $): 151.13

d. Reviewed PPPRA PRODUCT PRICING TEMPLATE ATK

Based on Average Platts’ Prices for the month of January,2010

Average Exchange Rate of the NGN =N= to US$ for the Month of January, 2010

ATK

$/bbl $/MT Naira/Litre

Daily PLATT’S Movement (FOB

BARGES)

0 Cost of Crude (Brent Dated) 76.21

1 CIF (NWE) October,2009 685.60 84.22

2 Freight Rate 53.50 6.57

3 Lightering Expenses (MV+SVL) 35.88 4.41

4 NPA 10.50 1.29

5 Financing 3.96 0.49

6 Jetty Depot Thru’ Put Charge 6.51 0.80

7 Storage Charge 24.42 3.00

8 Landing Cost 820.38 100.77

Distribution Margins :

9 Retailers 37.45 4.60

10 Transporters 22.39 2.75

11 Admin Charge 1.22 0.15

12 FAAN Charges 16.28 2.00

13 Total Margins 77.34 9.50

14 Total Cost 897.72 110.27

15 Taxes

Highway

Maintenance –

Government Tax –

Import Tax –

Fuel Tax –

16 Retail Price 110.27

Data is as at 29/1/10

110.27

Conversion Rate (MT to Litres): 1232

Exchange Rate (N to $): 151.33

FOOT

NOTE

• Bridging Charges (N3.95) excluded
• Airport Differentials recognised by both sides to apply: Lagos/Abuja/Port-Harcourt/Kano
• House Committee on Aviation approved 15 – 20% distribution margins to apply above the landing cost.