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TOPIC : DEREGULATION OF THE DOWNSTREAM SECTOR OF NIGERIAN OIL INDUSTRY: PROSPECTS,
PROBLEMS AND CHALLENGES (1986 - 2011)
OF THE STUDY
Petroleum products supplies have always been an acid
test for successive Governments in Nigeria. With the
new democratic dispensation, the supply and distribution
of petroleum products improved but this was without
a price – frequent increase in petroleum products
prices. Virtually all administrations – both military
and democratic administration have had cause to increase
petroleum products prices in Nigeria. In his nine years
in office as Head of State, General Yakubu Gowon took
the price of petrol from 6 kobo to 9.5 kobo per litre.
General Olusegun Obasanjo took fuel price by a leap
moving it from 9.5 kobo to 15 kobo. The regimes of Shehu
Shagari and General Muhammadu Buhari maintained the
status quo as they never increased fuel price (Adagba,
et al. 2012).
Former military President Ibrahim Babangida moved the
price of petrol from 15 kobo to 70 kobo in his eight
years of governance. But by far the greatest leap of
oil price in Nigeria was introduced by Chief Ernest
Shonekan, an interim Head of State who took the price
from 70kobo to N5.00 within the 87 days of his rule
(Adagba, et al. 2012). Late General Sani Abacha moved
price of petrol from N5 to N11 within his five years
in office while General Abdulsalami Abubakar increased
the price of petrol from N11 to N20 within the ten months
he ruled Nigeria. President Olusegun Obasanjo under
democratic regime raised the price of fuel from N20
to N70 within eight years he spent in office. However,
late Umaru Yar’Adua reduced the price from N70
to N65, but President Jonathan increased the price N65
to N141 per litre. Negotiations between the Presidency
and the Organised Labour led to the bringing down of
the price from N141 to N97 per litre after eight days
of strike and street protests (Adagba, et al. 2012).
Under every democratic administration, the ugly incidence
of petroleum scarcity surfaces, and one begins to wonder
if there is any solution to this problem.
The contemporary passion and tension that usually characterise
petroleum discourse is due to inexplicable deprivations
and sufferings of Nigerians amidst plenty and abundance
of these products. As the sixth largest oil exporter
in OPEC (Balouga, 2012), Africa’s second largest
producer of crude oil after Libya, eightieth largest
exporter in the whole world (Ovaga, 2012) it is a paradox
that in the past decade, supply of all products has
been erratic and on sharp decline. Ironically, as supply
declined, products’ prices have been on the increase
as successive governments searched for “appropriate
The combined impact of erratic and inadequate supply
and unending price increases have brought untold hardship
to the citizenry (Ovaga, 2012) 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
(Ojo and Adebusuyi, 1996). 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).
According to Ikponmwosa and Odogwu, (2012) the objective
of deregulation and privatisation of the oil and gas
industry is to enable private investors to invest in
the sector in other to eliminate constant shortages
of fuel and gas in the country. The arguments for this
is that: subsidized pricing scares away investors, increased
consumption and higher energy prices at the international
market is weighing more the government budget and denying
infrastructural development, the rich benefit more from
fuel subsidy, parts of the subsidy is being corned by
“cabals” (Balouga, 2012).
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. The government posited that the prices would
only rise in the interim. Comparing the situation to
the development in the telecommunications industry,
the government argues that the only way to arrest and
correct the structural distortions in the sector is
liberalization that would encourage businessmen to invest
in building refineries and importing products to sell
at prices dictated by the market (Onyishi et al., 2012).
However, this is an argument not supported by empirical
evidence. Diesel and engine oil prices have been deregulated
for years. Yet, unlike the situation in the telecommunication
industry, the prices have been going up. It was expected
that deregulation would give room for competition which
would transform to price reduction and excellent supply
and distribution network. A number of factors have been
cited to be responsible for the low investment and competition
in the sector. The most crucial of the factors is the
delay in the passage of the Petroleum Industry Bill
(PIB). 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.
OF THE PROBLEM
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 (Ojo
and Adebusuyi, 1996). 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 (Ozumba,
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 1986. 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 1990.
The 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 and its consequential effects.
Yekini (2011) attributed scarcity of Kerosene in Nigeria
to inadequate importation of the product and its diversion
from domestic uses to other areas. He therefore posits
that subsidy is injurious to the Nigerian economy and
therefore recommends the removal of all petroleum product
subsidies and the liberalization of all the downstream
activities in the petroleum industry.
Balouga (2012) notes that as far back as June, 2003
government figures indicated that for each litre of
petroleum products, N12 was spent on subsidy. This implied
a subsidy of N74 billion or 1.42% of GDP. He stated
further that by the end of 2007 with subsidy shooting
up to N450 billion, it went up to 3% of GDP. Balouga
(2012) argues that there is no doubt that the country
was really subsidizing inefficiencies, fraud and racketeering
in the whole production and distribution chain and in
that context, given the competing needs for scarce resources,
government felt the need to do something.
OF THE STUDY
This study is significant in the followings ways:
a. It would use a market structure-conduct-performance
framework to analyse the industry, both before and after
deregulation, as a means of judging the impact of deregulation
in terms of petroleum products prices.
b. The significance of this study also lies in the fact
that it would contribute to existing literature on the
subject matter by providing an expository analysis of
the pattern of increase of petroleum products prices
in Nigeria. This would enhance policy formulation in
the downstream oil sector with the intention of alleviating
the suffering of the masses.
c. It would also be an invaluable tool for students,
academic, institutions and individuals that want to
know more about the deregulation of the downstream sector
of the Nigerian oil industry.
AND OBJECTIVES OF STUDY
The aim of this study is to appraise the deregulation
exercise that was carried out in the Nigerian downstream
The specific objectives of this study are as follows:
(i) To evaluate the pattern of petroleum products prices
(ii) To examine the consumption pattern of petroleum
products before and after the deregulation;
(iii) To examine the impact of the deregulation of downstream
oil sector on petroleum products pricing in Nigeria;
(iv) To investigate the effect of the deregulation of
the downstream oil sector on the living standard of
(v) To examine the pre- and post-deregulation era and
make critical comparism;
(vi) To explore the reasons why deregulation has not
yielded the desired result in terms of prices and supply.
The study would examine the following questions:
(i) What is the pattern of petroleum products pricing
in Nigeria over the years?
(ii) How has the deregulation exercise impacted on the
consumption pattern of petroleum products in Nigeria?
(iii) To what extent has the deregulation of the downstream
oil sector impacted on petroleum products pricing in
(iv) How does the regulated downstream sector differ
from the deregulated era?
(v) Why are we still witnessing petroleum products prices
increases after deregulation?
METHODOLOGY AND SOURCES OF DATA
The method of data analysis to be used shall be a time
series showing the pattern of the petroleum products
prices before, after and during the deregulation exercise.
Secondary data shall be the basis of analysis in this
research work. The data shall be sourced from the publications
of Nigerian National Petroleum Corporation (NNPC), Petroleum
Products Pricing Regulation Agency (PPPRA), Central
Bank of Nigeria, and National Bureau of Statistics.
The secondary data shall cover the period between 1986
OF THE STUDY
This study examines economic rationality behind deregulation
of the downstream sector of the Nigerian oil industry.
The study seeks to investigate the effect of the deregulation
on the prices and consumption of petroleum products
as well as its impact on the living standard of Nigeria.
The empirical analysis is restricted to the period between
1986 and 2011 because it was during the period that
policy was implemented.
One of the major limitations of this study is that the
period of time given by the institution’s authority
for the study would not allow for an in-depth coverage
of all the issues connected with the topic under study,
and collection of related information.
Also, certain information required in order to highlight
and analyze some observation may not be accessible e.g.
Independent oil marketers’ operation records may
be regarded as strictly confidential and would not be
divulged to the research. And lastly finance is another
constraint to an indebt study of this topic.
OF THE STUDY
This study shall contain five chapters. The first chapter
shall contain the background of the study, the statement
of the research problem, the objectives of the study,
the research questions etc that would guide the study.
Chapter two would present the literature review on the
subject matter. The methodology to be adopted in the
study would be stated in chapter three. Chapter four
shall focus on the presentation and analysis of collected
data. The last chapter – chapter five, would present
the summary of the findings, conclusion and appropriate
Adagba, O.; Ugwu, S. C. and Eme, O. I. (2012)
“Deregulation and Anti-Subsidy Removal Strikes
in Nigeria, 2000 -2012”. Arabian Journal of
Business and Management Review (OMAN Chapter).
Vol. 1, no.7, pp. 69-83.
Balouga, J. (2012) “The Political Economy of Oil
Subsidy in Nigeria”. International Association
for Energy Economics. Second quarter, pp. 31-35.
Ikponmwosa, A. N. and Odogwu, C. C. (2012) “Deregulation
and Privatisation of the Upstream and Downstream Oil
and Gas Industry in Nigeria: Curse or Blessing?”
International Journal of Business Administration.
Vol. 3, no. 1, pp. 16-20.
Ojo, M. O. and Adebusuyi, B. S. (1996) “The State
of the Nigerian Petroleum Industry: Performance, Problems
and Outstanding Issues”. CBN Economic and
Financial Review. Vol. 34, September.
Onyishi, A. O., Eme, O. I. and Emeh, I. E. J. (2012)
“The Domestic and International Implications of
Fuel Subsidy removal crisis in Nigeria”. Kuwait
Chapter of Arabian Journal of Business and Management
Review. Vol. 1, no. 6, pp. 57-80.
Ovaga, O. H. (2012) “Subsidy in The Downstream
Oil Sector and the fate of the masses in Nigeria”.
Kuwait Chapter of Arabian Journal of Business and
Management Review. Vol. 1, No. 6, pp. 15-34.
Ozumba, C. C. (1996) “Harnessing the potential
of the Nigerian Oil and Gas for Economic Development”.
CBN Economic and Financial Review. December.
Yekini, O. L. (2011) “Kerosene Adulteration in
Nigeria: Causes and Effects”. American Journal
of Social and Management Sciences. Vol. 2, no.
4, pp. 371-376.
is deregulation, energy deregulation
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