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TOPIC : DEREGULATION OF THE DOWNSTREAM SECTOR OF NIGERIAN OIL INDUSTRY: PROSPECTS,
PROBLEMS AND CHALLENGES (1986 - 2010)
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. With few months to the end of the regime, the
ugly incidence of petroleum scarcity surfaced again
and one begins to wonder if there is any solution to
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 6th largest producer of petroleum,
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
The combined impact of erratic 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.
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. 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.
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 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 inspite 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.
SIGNIFICANCE 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.
AIMS 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?
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
SCOPE 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 2010 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.
ORGANISATION 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
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.
Ozumba, C. C.
(1996). “Harnessing the potential of the Nigerian
Oil and Gas for Economic Development”, CBN Economic
and Financial Review, December.
is deregulation, energy deregulation