1.1 Background of the
Historically, major petroleum marketing companies were the main sources
of petroleum product’s supply. The companies transported and distributed the
products relying on their distribution and retail outlets. This was an era of
deregulation in which Nigerian paid market-determined prices for products.
However, this arrangement was not sustainable given that it was dependent on
the profit and market imperatives of the oil marketers. The country’s economic activities expanded in
the seventies such that private companies could no longer cope with increase
demand for products. This resulted in erratic supply of petrol and kerosene and
ultimately acute scarcity of the product. The shortage was endemic and created
social and economic dislocation in the country. This market failure made
government to venture into petroleum products marketing and distribution.
The concern by government to overcome this lack of policy and total
dependency on oil companies led to policy shift towards regulations. Government
therefore introduced uniform pricing to satisfy domestic demand, strengthen
self-reliance and avoid a situation in which the oil companies could hold the
country to ransom. The nation witnessed adequate supply of petroleum products
up till 2000. Thereafter, due to the sustained devaluation of the Naira on account
of the implementation of the Structural Adjustment Programme (SAP) coupled with
the non-maintenance of the refineries, domestic production was soon undermined
making it imperative for demand to be met through imports.
The shortages of petroleum products escalated in spite of increases in
prices of products since 1999. The Olusegun Obasanjo administration on coming on board decided to
gradually withdraw the subsidy on petroleum products to allow the mechanics of
market forces to take its full course. This again, resulted to frequency
increase in petroleum products prices.
1.2 Statement of the
Petroleum products supplies
have always been problematic for successive Governments in Nigeria. With the
new democratic dispensation, the supply and distribution of petroleum products
improved but this was without a frequent price increase in petroleum products.
With few months to the end of the Obasanjo’s regime, the ugly incidence of
petroleum scarcity surfaced again and one begins to wonder if there is any
solution to this problem.
The contemporary passion and tension that
usually characterize petroleum discourse is due to unquantifiable deprivations
and sufferings it causes in Nigerians. As the 6th largest producer of
petroleum, it is a contradiction that in the past decade, supply of all
products has been changeable and on sharp decline. Ironically, as supply
declined, products prices have been on the increase as successive governments
searched for “appropriate pricing”. The combined impact of unreliable and
inadequate supply and unending price increases have brought untold hardship to
the citizenry and worse too, prevented economic recovery as promised by the
present democratically elected government given that capacity utilization in
the manufacturing sector nose-dives due to shortages of industrial products.
Indeed many industries have been compelled to close due to non-availability of
some of these products.
In the bid to solve the problem in many
developing countries, structural reform of petroleum markets has become a
critical component of macroeconomic liberalization policies. The role of the
government in the petroleum sector is being redefined, and markets are being
deregulated (i.e state interventions such as special treatments of state-owned
oil companies, price controls and monopolies are being broken up).
Increasingly, the private sector is participating in more competitive
environment. But unexpectedly, the outcome of the deregulation has not been
encouraging. There has been continuous increase in petroleum prices with
persistent scarcity of petroleum products. It was expected that deregulation
would give room for competition which would transform to price reduction and
excellent supply and distribution network. This study is devoted on the
evaluation of the deregulation exercise; critically appraising its impact on
petroleum pricing, consumption and the general living standard of the people.
1.3 Objectives of the Study
The aim of this study is to appraise partial deregulation exercise that
was carried out in the Nigerian downstream oil sector.
The specific objectives of this study are as follows:
To evaluate the pattern of petroleum
products pricing in Nigeria;
To examine the consumption pattern of
petroleum products before and after the partial deregulation;
To examine the impact of the deregulation of
downstream oil sector on petroleum products pricing in Nigeria;
To investigate the likely effect of the
deregulation of the downstream oil sector on the living standard of the people.
The study would examine the following questions:
What is the pattern of petroleum products
pricing in Nigeria over the years?
How has the deregulation exercise impacted
on the consumption pattern of petroleum products in Nigeria?
To what extent does the deregulation effort
of the downstream oil sector impacted on petroleum products pricing in Nigeria?
Do you think that partial deregulation of
the downstream oil sector in Nigeria will yield deserve economic recovery?
1.5 Formulation of Hypotheses
The following hypotheses were formulated
based on the objective of the study:
Hi= alternative hypothesis
Ho= null hypothesis
Hi: The deregulation exercise
has impacted on the consumption pattern of petroleum products in Nigeria.
Ho: The deregulation exercise has not
impacted on the consumption pattern of
petroleum products in Nigeria.
Hi: The deregulation of the
downstream oil sector has largely impacted on petroleum products pricing in
Ho: The deregulation of the downstream oil sector
has not impacted on
pricing in Nigeria.
Hi: That the regulated
downstream sector differs significantly from the
Ho: That the regulated downstream sector does not
from the deregulated
Hi: That the partial deregulation of the
downstream oil sector in Nigeria has yield deserve economic recovery of
Ho: That the partial deregulation of the
downstream oil sector in Nigeria has
not yield deserve economic recovery of the country.
Hi: Partial deregulation of the
downstream oil sector in Nigeria will yield
more deserve economic recovery.
HO: partial deregulation of the
downstream oil sector in Nigeria will yield
less deserve economic recovery.
1.6 Significance of the Study
This study shall be found useful by all citizens of the
country as well as policy makers and individuals affected by the scourge of deregulation. It shall also be found
valuable by ideologists and Governmental agencies as well as NGO’s saddled with
the responsibility of national citizens’ orientations, ethnic nationalities,
and scholars with interest in similar areas of study will equally find this
report very useful. The study will also serve as a point of reference to
students in higher institutions and as a point of reference for further
1.7 Scope of the Study
This study shall analyze the Deregulation of the
Downstream Oil Sector in Nigeria as a solution to Economic Recovery of the
Country. The study will
foster citizens consciously or unconsciously betray patriotism by beating
undeserving drums of support for public office holders in a bid to defend their
territory, whether the supported person/action is worth condemning or not.