THE IMPACT OF DEREGULATION ON THE DOWNSTREAM SECTOR (OIL INDUSTRY) ON THE NIGERIA ECONOMY: A CRITICAL APPRAISAL

CHAPTER ONE

1.0     INTRODUCTION

Since its discovery in Nigeria, in the early 1970s crude oil has remained the mainstay and the dominant export and foreign exchange earner of the Nigerian economy. Where as it contributes 2% to government revenue in 1970, it has risen to 81% by 1981 and it accounted for about 98% of our total export during the same year. This after 30 years of commercial exploitation of oil in the country, Nigeria remains largely an exporter of light and importer of heavy oil and refined petroleum products in general.

This implies that any disequilibrium in the world market with respect to the demand and pricing of oil will have a decisive effect on our domestic activities. The lopsidedness in the pattern of development of Nigeria oil resources, Nigeriacurrently depends largely on importers to supplement the output of both theKaduna and Port Harcourt refineries to meet the consumptions requirement of the populace.

The genesis of the present crisis in the oil sector is traceable to the deep rooted lopsidedness in the development of crude oil. The sporadic and lingering merger crises in the country, in recent time, which has assumed an alarming dimension with the attendant excruciating scarcity of petroleum products and commitant hardship on the citizenry definitely call for a strategic review of investment in the oil sectors.

In order to enhance an efficient and uninterrupted supply of petroleum products there is the need to attract more private sector in particular in the refinery products, which have been on exclusive preserve of government and its parastatals. It is as a result of this that the Nigerian down stream petroleum marketing sector was fully deregulated effective from 1st October, 2008.

1.1     BACKGROUND INFORMATION OF THE STUDY

Due to the problem associated with pricing and distribution of petroleum product nation wide, the government has resolved to deregulate the downstream sector of the oil industry to increase on the effectiveness and efficiency of the pricing and distribution system and curb the associated problems.

The policy of the government is necessitated by in-active and incapacitation of the refineries to meet the petroleum product requirements of the populace, coupled with mal-administration, misappropriate in and bad management practice that characterized all public corporations, the oil sector inclusive. To avoid excess spending of government on the subsidy of petroleum products, deregulation of downstream sector now become inevitable. As one will agree, there is no government in any part of the world that can survive by running a programme of subsidy in petroleum products.

Economic experts and policy markers, all over the world have since recognized the prime role and active present of private entrepreneurship in the development of most or all the sectors of the economy of which oil sector is no exception.

This, the federal government of Nigeria also came to realise after spending heavily on subsidy and resulting to persistence increase in the price of oil products all of which do not solve the lingering problems of supply and distribution of petroleum products in the country. It should be noted that by subsidizing petroleum product prices, the government is dipping hands into the federation account and utilizing money which, ordinary, would have been used to energizing both the micro and macro-economic activities of the nation.

Full deregulation will impact positively on Nigeria structure. The advantage of such will be free in economic activities enhance growth and development.

Deregulation has generated heated emotional reactions from outspoken organised group, which include labour, professional bodies etc. This is understandable, because the individuals and groups do not have sufficient information on the process between procurement and delivery of the petroleum product to the end users. The current government policy of deregulation is inevitable consequence of a collapsing down stream sector, arising from government inability to raise the required finance to sustain the importation of refined petroleum product. It is quite obvious that Nigerian oil industry has been plagued by serious ailment which can be likened to the dreaded Acquired Immune Deficiency Syndrome (AIDS), but unlike AIDS however, the problems in our oil industry are not incurable as there exist some well known solution and remedies. The government and the citizen, including the Nigerian Labour Congress (NLC) have been at logger head over the issue of price deregulation or removal of subsidy in petroleum industry. The government claims that this is necessary to arrest the scourge of perennial and incessant scarcity of petroleum products across the nation, which seems to have defiled previous solution. Government further asserts that the price deregulation would stamp out or least drastically reduces the incidence of smuggling of petroleum products across the borders of neighbouring countries. Where the products sell for much higher price on the parts, the NLC leadership become incurred over what it claimed is government gross insensitivity to the plight of the suffering workers and the masses as a whole. Furthermore, NLC is of the conviction that government cannot claim to be subsidizing the price of petroleum product in Nigeria with those countries, especially neighbouring countries that do not produce oil. It affirms that the problems in Nigeria oil industry are as a result of corrupt practice by NNPC official the ruling class some greedy traditional ruler, serving and retired military top brass, all of whom uses are one form or the other to suck the nation dry through NNPC and its subsidiaries. It will therefore, be quite unjust and inequitable for government to punish the masses by claim to be removing non-existing subsidy (Adams Oshiomole, 2001).