APPRAISAL OF NIGERIA’S OIL AND GAS INDUSTRY IN POST DEREGULATION ERA

CHAPTER ONE

Introduction

1.1       Background to the study

According to Eson (2002), the Nigeria’s oil and gas industry has continued to represent as the mainstay of the nation’s economy since 1956 when oil was discovered at Oloibiri in the Niger Delta region. The industry, undoubtedly, is widely recognized at the nation’s live-wire because it generates employment opportunities for Nigerians (principally with the enactment of the Local Content policy), contributes to Nigeria’s gross domestic product GDP as well as government income and revenue, boosts foreign exchange reserves, provides contemptible and readily accessible sources of energy for industrial activities and business from side to side the operations of the home refinery and the exploitation of locally discovered natural gas (Odularu, 2008). Nevertheless, regardless of this advantage, the oil industry is plagued by a variety of problems which the Federal government thought that deregulation of the downstream sector was a solution.

However in recent years, deregulation of the sector of the oil and gas industry has become a contentious subject in Nigeria. In 2003, the Federal government bedeviled with fiscal deficit, high international debt, unfavourable balance of payment and incapability to maintain and continue the huge subsidy for fuels announced her objective to deregulate the downstream sector of the petroleum industry (Adeoye, 2010). Since the announcement, Nigerians have lost count about how many times organized Labour went on strike over downstream oil deregulation policy. It will be important to quickly point out that deregulation of the sector has started since early 1980s which has led to regular increment in Petrol Pump price starting from the regime of former President Ibrahim Babangida. This study will assess the Nigeria’s oil and gas industry in the post deregulation era from 1986 to 2015.

Nigeria is the OPEC’s sixth biggest crude oil producer, with her plentiful natural endowments still import and pay international prices for natural resources it has in excess. The Federal Government grumbled that the cost of subsidizing importation which was calculated to be as high as $1.5 billion annually (Ibanga, 2006) has become unbearable to sustain, and that deregulation of the sector would bring in investors into the oil and gas industry and incite competition which would result in reduction in the prices of petroleum products (Adeoye, 2010).

As part of the deregulation policy, the Federal Government stopped the sale of oil to Nigerian National Petroleum Corporation (NNPC) as the government was buying refined products at huge international prices only to sell at a heavily subsidized rate. NNPC now buys at the prevailing international price, since its refineries are almost down. Thus, it exports and uses the proceeds to import refined fuel for local consumption. Nigerians are saddled with continuous increase in the cost of locally consumed fuel as international oil prices increase. NNPC, major and independent marketers, have become importers of petroleum products, leaving pricing at the hands of market forces (Nkoro, 2006).

Stakeholders in the oil and gas industry have continued to call for the total deregulation of the downstream sector as a way out of the protracted fuel scarcity going on across the country, for this reason the news agency of Nigeria (News agency of Nigeria, 2012) reported that a multi-phased deregulation process is the only means out of the unending scarcity, and while decrying the lingering scarcity, called for sufficient enlightenment and the stipulation of cushioning measures before the total removal of subsidy because without full scale deregulation, the scarcity would continue as the demand for the product has over-shot supply necessitated perhaps by the delay in the payment of subsidy arrears to most marketers which has resulted in only NNPC importing oil needed in the country. It has been reported in various for a that there is fraud in the fuel subsidy payments to the Nigerian fuel marketer, hence termed subsidy scam.

1.2       Statement of the problem

It has become very obvious that Nigeria, the hypothetical giant of Africa, has over the years being plagued by bad governance resulting in the mismanagement of the oil and gas industry. This is a problem, especially when examined within the national system of governance and the petroleum industry. As rightly observed by Uga (2003), the pervasive poverty situation in Nigeria has to do with bad governance. Ineffective system in Nigeria is manifested in poor management of the nation’s resources, coupled with large-scale fraud and corruption. Related to this problem is that despite being among the world’s top 10 oil producers, Nigeria relies heavily on imported petroleum products to meet local demands as its own four refineries are functioning at levels beyond optimal capacity.

The several increase in oil price and consequent strike action have raised pertinent issues concerning the state of affairs of management of the nation and the petroleum industry. The issues include: excessive high cost of governance, especially among the executive and legislative organs of government; high level of fraud and corruption in the petroleum sector; mismanagement of the nation’s oil wealth; lack of transparency and accountability, and maladministration of fuel subsidy by all parties concerned. Despite this situation, deregulation is still considered as the way out of energy problems in Nigeria. From the foregoing, the researcher is assessing the Nigeria’s oil and gas industry in the post deregulation period.

1.3       Objectives of the study

  1. To access the performance of Nigeria’s oil and gas industry in post deregulation era (1986-2015).
  2. To determine the reason why deregulation is necessary in Nigeria’s oil and gas industry.
  3. To examine the contribution of Nigeria’s oil and gas industry on the economic development of the nation.

1.4       Research hypothesis

H0: the deregulation of the Nigeria oil and gas industry has no significant effect on the economy of Nigeria

H1: the deregulation of the Nigeria oil and gas industry has significant effect on the economy of Nigeria

1.5       Justification of the study (Significance)

The outcome of this study will be a useful guide for policy makers in oil and gas industry in Nigeria and also form a first-hand guide for the general public on the issues in Nigeria’s oil and gas industry in post deregulation period.

This research will be a contribution to the body of literature in the area of the appraisal of Nigeria’s oil and gas industry in post deregulation era (1986-2015), thereby constituting the empirical literature for future research in the subject area.

1.6       Scope of the study

This study is limited to the deregulation process and consequences in Nigeria’s oil and gas industry (1986-2015).

1.7       Organization of the study

This study will comprise of five chapters. The first chapter which is the introduction will contain the background to the study, statement of the problem, objectives and hypotheses of study, significance/justification, scope and organization of study. The second chapter which is the review of related literature shall present the conceptual, empirical and historical review of past literature that are related to the variables under study. The chapter three which is the theoretical framework and research methodology shall comprise of related theories, methodology and sources and measurement of data. Chapter four which is the presentation and analysis of results shall contains the main result presentation, discussion of findings and comparison of results with previous studies. Finally, the last chapter will be made up of summary of findings, conclusion, recommendation, limitations of study and suggestions for future research.

REFERENCES

Adeoye, Y. (2010), “Deregulation: Solution to Constant Petroleum Supply Shortages”, The Nigerian Vanguard, Nigeria

Eson, P. (2002), “Political Economy of Oil Extraction in Nigeria. In Boiling Point – A Committee for the Development of Human Rights (CDHR) Publication on the Crisis in the Oil Producing Communities in Nigeria, Raji, W., A. Ale and E. Akinsola (Eds.), Frankad Publishers, Lagos, Nigeria.

Nkoro, E. (2006), “Increase in Fuel Price: Analysis of its Effect on Nigerian Economy”, University of Benin, Nigeria.

Odularu, G. O. (2008), “Crude Oil and Nigerian Economic Performance”, Oil and Gas Business. (Online). Available: