AN EXAMINATION OF THE LEGAL FRAMEWORK FOR THE MARKETING OF PETROLEUM PRODUCTS IN THE DOWNSTREAM SECTOR OF THE OIL AND GAS INDUSTRY IN NIGERIA

CHAPTER ONE

GENERAL INTRODUCTION

1.1       Background of the Study

Oil and Gas activities date back to the colonial era¹ in respect of Lagos colony. However, an examination of Nigerian statutes will reveal that the major constituents of the laws which appertain to exploration and exploitation of petroleum are traceable to the Mineral Oils Act of 1914 – the year that the Southern and Northern Protectorates were amalgamated. During the currency of this 1914 Act, grants were given to search for, work and win mineral oils². This aspect of the law³ did not develop in any great measure until the later part of 1950 to 1960 decade when the active search for oil in the country was stepped up.

The exploration and production activities (hereinafter referred to as „upstream operations‟) dominated the petroleum landscape with a reasonable percentage of what was produced being carried away through export by the international oil companies as dictated then by the traditional concessions. These concessions granted by the colonial masters to the colonial oil companies did not seek to enrich Nigeria from the sale of the produced petroleum as, upon production, the petroleum belonged to the International Oil Companies (IOCs). It was

• ^nd Edition, Dredew Publishers, Lagos, Nigeria. p.8.

1

theirs to do with as they deemed fit, only paying pittance to the host countries.⁴

With an increasing proven reserves and earning capabilities in respect of foreign exchange, successive governments of the Nigerian Federation concentrated on legislation and policies that added fillip to upstream operations. Little wonder therefore that there has been a dearth of legislation as regards the refining, transportation (of both crude and finished products), distribution and marketing of the petroleum products. These activities put together are contextually referred to as “downs tream operations”⁵ of the oil and gas industry.

In the earliest decade after Nigeria‟s independence (1960-1970), there was no statute in place that gave directives in the marketing of petroleum products except that the government, through the national oil company then, the Nigerian National Oil Corporation (NNOC) began to forage into the petroleum operation which, according to the Petroleum Profit Tax Act⁶ 1958 is defined as drilling and extracting activities. The NNOC was primarily charged with regulatory and supervisory roles until 1977 when it was replaced by the Nigerian National Petroleum Corporation (NNPC). The role of the newly created

• Omorogbe Y. (2003) Oil and Gas Law in Nigeria. 1^st Ediiton, Malthouse Press Ltd Lagos, p. 33.

• NNPC in-house Publication, (2006) Deregulation of the downstream sector of the Nigerian Petroleum Industry – Information for all Stakeholders, p. 1.
• 25^th Item in Section 2, Cap 151, L.F.N 1958 and this was repealed by the1969 Petroleum Fuel (control) Act No

2

NNPC was enlarged to accommodate engaging in petroleum operations (upstream activities) as well as refining, supplying, distributing and marketing (Downstream) activities. With particular reference to the downstream activities, the Nigerian National Petroleum Corporation Act, 1977⁷ charges NNPC with the duty of refining, treating, processing and generally engaging in the handling of petroleum for the manufacture and production of petroleum products and its derivatives. The act also authorizes the NNPC to purchase and market petroleum, its products and bye-products⁸. This is the basis today upon which the NNPC imports finished petroleum products in augmentation of the shortfall in capacity production being experienced by local refineries. Therefore, the downstream activities were strictly carried out by the government through the NNPC yet, the determination of the prices at which the refined products were to be sold was decided by the Petroleum Minister⁹.

AN EXAMINATION OF THE LEGAL FRAMEWORK FOR THE MARKETING OF PETROLEUM PRODUCTS IN THE DOWNSTREAM SECTOR OF THE OIL AND GAS INDUSTRY IN NIGERIA