DEREGULATION OF THE PETROLEUM SECTOR.

IS IT A WISE DECISION?

1.1 GENERAL DISCRIPTION OF STUDY

Petroleum serve as the main stay of the Nigerian economy, providing over 90% of our
export earnings while about 65% of Federal Government incomes are derived from the
sector. In addition, its downstream operations currently contribute as much as 20% of
GDP such that it considerably impacts on aspects of the economy, most especially, the
manufacturing sector. It remains the wheel that keeps the other sectors going. No issues
evoke more tension and sentiment in Nigeria like Petroleum. It is the story of how
natural resources could be a blessing as well as an anathema to a people.

As blessing, Oil has given Nigeria much of the wealth and cloud it wields in the
international community being the world’s sixth largest producer of the much sought
after resource. And as a curse, the resource has generated more crisis than any other
indices in the entire polity.

Before the discovery of petroleum in 1950 and its subsequent exploration in 1958, the
Nigerian economy had been agrarian economy. The malfunctioning and mining
activities were at a very low level of development and the country’s participation in the
world market was informed by the level of economic activities in agriculture. In fact,
the finances used in the development of the petroleum industry in Nigeria were largely
by the agricultural sector.

After independence, in the late 1960’s the growth of the Nigeria economy can be traced
to the growth of the country’s petroleum industry. Within 1988 and 1993, Nigeria had
realized an average of US$10 billion annually, from Oil export. The revenue from
petroleum has been on the increase to the extent that it now constitutes a major variable
considered in determining the annual national budgeting thereby overtaking the
agricultural sector of the economy.

Review of Literature Related to the Study

Substantial literature exists on how petroleum has affected the lives of Nigerian people
and the economy and various comments have been made by distinguished scholars as
regards the petroleum industry in Nigeria. It is therefore pertinent to examine study for
a comparative analysis and thus, below is some of the quotes and opinions of
distinguished people.
R. Lukman (1989) commented in a seminar organized by the then ministry of
petroleum Resources that the success story of the petroleum industry has led to
increased tempo of regulatory activities aimed at ensuring that government aspirations
to achieve effective and efficient management as well as optimal utilization of the
country’s petroleum resources are not frustrated. In fact, he stressed that the impact of
petroleum on the overall economy of this country, in recent years, has been so great that
when “petroleum” sneezes, the “Nigerian Nation”, not just the economy catches cold
and trembles to a crumbling point. Consequently, the operations of the petroleum
industry need to be effectively and efficiently regulated to foster economic and orderly
technological development of the industry. There is need for government intervention
in the petroleum industry to perform regulatory function by overseeing all the activities
involving the petroleum sector.

G.O. Nwankwo (1983) reflected on the place of the petroleum industry in the Nigerian
economy. Its milestone achievement has culminated in its position as Nigeria’s only
important export commodity.
He deliberated on Nigeria’s membership of OPEC after considerations of all the issues
raised in favour of a pull out and concluded that it till be a retrograde step.
Over the past decade, a number of studies (Mork 1989, Mary 1993, Mork 1994, Lee et
al 1996, Hamilton 1996, Huntington 1998, Davis and Haltiwanger 1998 and Hamilton
and 1999) have investigated and confirmed an asymmetric relationship between oil
prices, demand for petroleum and aggregate economic activity. However, Hamilton
(1998) attributes the asymmetry to the relationship between crude and petroleum
product prices. Hamilton (1998) explains that asymmetry could be the result of
adjustment costs of changing Oil prices. Falling Oil prices stimulate economic activity
and rising Oil prices retard economic activity. Combining these elements, it can be said
that rising Oil prices presents 2 negative effects for economic activity. The converse
holds true for falling Oil prices.

Soremekun K and Obi C. (1995) noted that with the absence of an economic base at
independence and the decreasing revenue from cash crops, oil gradually assumed an
importance as a strategic and economic asset as “Oil began to have a notable impact on
public finance”. In another study in 1993, the examined the threat to the autonomy and
the stability of the nation that Oil has assumed. In the same vein, J.K. Onoh (1992)
examined the impact of Oil on the Nigerian economy from the economic point of view
and found out that petroleum was responsible for the economic growth that the nation
witnessed in the 1970s and 80s, though this was achieved at the expense of other
sectors. He concluded his study by advising against the use of petroleum resources as a
political weapon in the struggle for global supremacy.

B. Onimode (1983) in his book “Multinational Corporations in Nigeria”, asserted that

the Oil sector has benefited the multi-national Oil corporations by the domination of
this strategic sector, from the acquisition of concessions of the country has been
ensured through low re-investment of profit, over-invoicing, transfer and exploitative
pricing of their petroleum, as technological transfer remains a pathetic delusion
In a book titled “Energy in Developing World” edited by Vaclav Smith and William E.
Knowland, M Quinlan (1980) wrote that through Nigeria’s oil revenue, Nigeria has
rapidly become Sub-Saharan Africa’s most rapidly developing country. Its wealth, in
terms of natural resources income per capital and state spending, vastly exceeds that of
neighboring states and has led in recent years to an increasingly influential role in
Africa politics. But, Nigeria’s own developing problems are real: It is still a young
nation and its wealth has brought difficulties as well as opportunities. He opined that
Nigeria is approximately the size of Portugal and Spain, supports a population of
80million (then in 1980), by far, the largest in Africa. The economy is heavily
dependent on petroleum, to the extent of about 25% in terms of export earning, 80% in
term of government revenue and well over one-third in terms of Gross domestic
product (GDP). Export earnings from crops are insignificant compared to those from
Oil.
In the words of I. Babangida (1986), “Nigeria will remain a petroleum country for
decades to come, with oil lasting for at least 30 years, at the current rate of production;
and gas for another century or two.
In the same vain, J. Aminu (1986) made it clear that oil is literally the main fuel for the
engines of the Structural Adjustment Programme (SAP) which he prayed would lead us
to economic growth and development with food security, a sustainable modern
industrial sector, creation of jobs for mass employment, stable price and guaranteed
surplus and along with all these, increased standard of living, political order as well as
social and cultural development.

Emenuga (1995), in an editorial note, pointed out that oil and politics are two factors
which remained inter-twined in Nigeria’s independent life. He acknowledged that if oil
is removed from the map of Nigeria, the politics will change drastically. He concluded
that trying to solve the political equation of Nigeria without considering oil, one will
end up deriving empty and irrelevant configurations.
Another study of Paul M. Mutfwang, in a paper presented at a work-shop on the
enduring energy crisis in Nigeria asserted that the monetary value of the products of the
petroleum sector has consistently been several times higher than those of Agricultural
and manufacturing sections. There is a number of largely unforeseen and unintended
consequence that include uncontrolled expansion of public sector, vulnerability of the
economy which reacts swiftly to violent switch back in oil fortune, inflation and an
exchange rate policy that does not encourage non-oil exports. He concluded by
advocating a regime of corrective measures that will protect the Nigerian economy
from the vicissitudes of world market fluctuations.

In a paper titled, “Industrialization in Nigeria – Problems and Prospects”, presented at

the Institute of Economics, in 1995, Olukoshi A., Adewusi A., Omoweh D., Bala J. and
Obi C. traced the nature and evolution of the structural problems confronting the
Nigerian oil industry and it’s far reaching effects on the economy. They opined that it
was this structural problem that prevented the huge wealth bestowed on Nigeria from
being translated into full industrial transformation. They advocated regime of increased
national participation in the downstream sector, attractive private investment package in
the area of export oriented refineries and petrol-chemical processing plants. An optimal
combination of these measures will turn these vast resources into a real self sustaining
engine of economic development.

According to Chief K. Daisi, deregulation means that when your cost of production is
low, the price must be low to reflect that position and vice versa. The said “The spate of
criticisms currently trailing deregulation must not make us loose sight of the
immeasurable benefits to be derived from the exercise”.

Jerry Gana (2001) reportedly told a national daily that the issue of deregulation is not
all about price. It is about a new system of demand and distribution to make petroleum
products available to consumers. The question is ‘How do you open up the system?’ it
is far more fundamental than price.

Enenmoh (2001) asserts that deregulation means that government will relinquish
control of the refineries, depot, pipeline networks etc as far as provision of government
funds of the midstream / downstream sector of the petroleum industry in Nigeria. Under
 deregulation of the downstream midstream sector of the industry, the refineries, depots
and pipeline networks will operate as profit centres.

2.3 Insight into the Implication of the Deregulation of Petroleum Products

The oil sector is the mainstay of the Nigerian economy and plays a vital role in shaping
the economic and political destiny of Nigeria. Hence, the decisions make in the oil
sector; which are more mostly long term, impinge on the welfare of the populace. It is a
common thing in Nigeria to lambaste the petroleum industry and other public utilities,
inter-alia, for failing in their responsibilities to the nation.

Commissions and Study Groups have undertaken various studies on the performance of
public enterprises; Adebo (1969), Udoji (1973), Onosode (1981) and Al-Hakim (1984)
chaired these commissions. The findings of these studies were consistent in affirming
that our public enterprises were infested with problems such as: “abuse of monopoly
power, defective capital structure resulting in heavy dependence on the treasury for
funding, bureaucratic bottlenecks, mismanagement, corruption and nepotism. There is
virtually no public enterprise in Nigeria today that functions well. In view of the
various bottlenecks and the attendant consequences associated with government
intervention in the industry, government now decided it will hands off supply of
petroleum and allow prices to be market determined.

However, it has also been argued that this deregulation might not be the viable solution
to the problems availing the Nigerian Petroleum Industry.
This as earlier stated is the objective of this research that is, to determine whether
deregulation of petroleum products is the most viable solution or not.
2.4 Model / Theory Relevant to the Research
Deregulation may be defined as efforts to remove the various rules set by government
or their agencies which seek to control the operation of firms.
One of the major augments in favour of deregulation involves “public interest theory”.
The suggestion here is that deregulation should be remove whenever it can be shown
that this removes or reduces the “deadweight loss” typically shown to result from
various types of market interference.

The figure below can be used to show how a particular market regulation, here a quota
scheme, can result in a deadweight welfare loss. In this analysis, economic welfare is
defined as consumer surplus plus producer surplus. The consumer surplus being the
amount they need to pay; the producer surplus, being the amount producers receive
over and above the amount they need for them to supply the product.

In the figure below, we started with an initial demand curve DD and supply curve SS
giving market equilibrium price P1 and quantity Q1. However, the regulation here is that
should the market price fall below a particular level P2, then the government is directed
to intervene. It is required to use a quota arrangement to prevent price from falling
below P2; in other words, P2 is a minimum price which is set by deregulation at a level
which is above the free market price P1.

FIGURE 1. S1
D
Welfare loss with
S
a quota scheme OQ2
P2 W
raising price (P2)
above the market B
P1 A
clearing level P1
C

D
S
 v

Net welfare change

= DCS + DPS
= - B – C.

In the terms of the figure above, if quota is set at Q2, then the effective supply curve
become SvS1 since no more than Q2 can be supply whatever the price. The result is to
raise the equilibrium price to P2 and reduce the equilibrium quantity to Q2. However,
the quota regulation has resulted in a loss of economic welfare equivalent to the area B
plus area C. the reduction in output from Q1 to Q2 means a loss of Area B in consumer
surplus and loss of area C in producer surplus which exactly result in a gain of area A
in producer surplus. This means that the net welfare change is negative i.e. there is a
“deadweight loss” of area B + area C.

Public interest theory is therefore suggesting that deregulation should occur whenever
the net welfare change of removing regulation is deemed to be positive. In terms of the
figure above, it might be argued that removing the regulation whereby the government
(or its agents) seeks to keep prices artificially high at P2 will give a net welfare change
which is positive, namely a net gain of area B + area C in other words, allowing the free
market equilibrium price P1 and quantity Q1 to prevail restore the previous deadweight
loss via regulation. Put another way, public interest theory is suggesting that
deregulation should occur whenever the outcome is a net welfare gain, so that those
who gain can, at least potentially; more than compensate those who lose which is also
according to Kaldor Hicks criteria of social welfare.

The empirical difficulties if placing a money value on changes in consumer surplus and
producer surplus should not, of course be under estimated. In terms of the figure above,
it involves accurate estimates of both the demand and supply or cost curves facing the
firm or industry. Issues of weighting must also be considered. Some might argue that a
given monetary value to consumers should be given a greater weight in terms of
economic welfare than a similar monetary value received by producers.

Whether deregulation will yield a net gain or loss (i.e. be for or against the public
interest) clearly involves both theoretical and empirical aspects, and may need to be
considered on case by case basis. Certainly, deregulation is gathering momentum in the
major industrialized economies e.g. it has been estimated that in 1997, some 17% of US
GNP was derived from the output of fully regulated industries, whereas, that figure has
declined to around 5% on GDP in current time.

Winston, (1993), in a wide-range study of the impacts of deregulation across the US

industrial and service sectors, found substantial net gains to have resulted from
deregulatory activities.

In the case of petroleum products, government intervention comes in the form of price
ceilings and subsidies amongst others.

STRUCTURAL COMPOSITION OF THE STUDY

Strong Facilities
Three main groups own the major storage and dispensing facilities nationwide. The
combined capacity of the storage depots represent 71, 99 and 108 nationwide days
sufficiency at the consumption rate of 18, 8 and 10million litres per day for PMS, DPK
and AGO respectively. The facilities are:
 23 depots / facilities owned by NNPC and located in various part of the country.
 Apapa Major Marketer’s facilities.
  Ibafon Independent Marketers facilities.

The total storage capacity is indicated in the table below. It it obvious that the installed
capacity is strategic and far exceeds the daily requirement. The solution to the problems
that invariably results in scarcity therefore lies in fostering sustainable supply and
distribution.

Table 1. Holding Capacities of Petroleum products Depots (All figures in M3).

S/N DEPOTS PMS DPK AGO ATK TOTAL

1 Benin 60,700 28,700 32,000 - 120,400
2 Ore 25,700 6,000 10,000 -57,600 99,300
3 Mosimi 163,400 76,000 127,200 - 424,200
4 Atlas Cove 48,000 34,000 32,300 1,900 116,200
5 Lagos 10,000 1,900 12,300 - 26,300
Satellite
6 Ibadan 102,800 28,700 40,500 - 172,000
7 Ilorin 32,500 6,800 20,000 - 59,500
8 Suleja 45,000 30,000 30,000 - 105,000
9 Minna 24,000 15,000 24,000 - 53,000
10 Kano 60,000 22,500 63,000 - 154,000
11 Gusau 24,400 9,100 20,000 - 53,500
12 Jos 72,900 8,700 43,200 - 124,800
12 Gombe 10,000 2,300 7,200 - 19,500
14 Maiduguri 20,200 15,900 18,500 - 54,600
15 Yola 39,000 21,900 24,000 - 84,900
16 Makurdi 59,300 28,100 34,300 - 121,700
17 Enugu 99,900 49,000 64,500 - 213,400
18 Aba 56,200 26,000 29,500 - 111,700
 19 Calabar 40,200 20,100 40,000 14,500 114,800
20 Ikeja** - - - - -
21 Warri* 99,200 87,700 97,400 -
22 Kaduna* 135,000 65,000 97,000 -
23 Port Harcourt 145,000 93,000 141,000 -

Subtotal (NNPC) 1,226,890 676,400 1,007,9 74,000 2,164,800

00
Apapa Major Marketers 40,000 17,300 23,000 11,500 91,800
Independent Marketers 17,400 15,200 54,000 - 86,600
(Ibafon)
NATIONWIDE TOTAL 1,284,290 708,900 1,084,9 85,500 2,343,200
00
Source: Pipeline and Product Marketing Company
Source: The Dailies
Note
1* Denotes refineries depots where tankage is not strictly dedicated to finished
products.
2** At Ikeja, tank farm belongs to the major marketers.

Distribution Facilities
A Pipeline Network
There is at present about 5,001km of pipeline network nationwide. The PPMC uses the
network of multi-products pipeline to move products from the refineries/import
receiving jetties to the 21 storage depots all over the country. All the system is multi-
purpose pipeline except for Mosimi – Satellite depot lines. The distribution network is
made up of a number of systems as follows:

1) System 2A- Warri-Benin-Ore-Mosimi.

2) System 2AX- Auchi-Benin.
3) System 2B-
 a) Atlas Cove-Mosimi-Ibadan-Ilorin
b) Mosimi-Satellite (Ejigbo in Lagos).
c) Mosimi-Ikeja.
4) System 2C- Escrvos-Warri-Kaduna (crude lines).
5) System 2D-
a) Kaduna-Zaria-Kano-Zaria-Gusau.
b) Kaduna-Jos-Gombe-Maiduguri.
6) System 2E- Port Harcourt-Aba-Enugu-Makurdi.
7) System 2EX- Port Harcourt-Aba-Enugu-Makurdi-Yola.
8) System 2CX
a) Enugu-Auchi (interconnection).
b) Auchi-Suleja-Kaduna.
c) Suleja-Minna.
9) System 2DX- Jos-Gombe.

The first phase of pipeline system was built over 20 years ago. However, despite the
fact that pipelines are generally known to have terminal life spam of 50 years if well
maintained, the pipelines and associated equipments such as pumps, valves, loading
arms and meters, generators etc have aged and are at various stages of deterioration.
Contributing to the deterioration is the lack of proper maintenance schedule as well as
the incessant and deliberate acts of vandalisation.

The effects of pipeline breaks and vandalisation are:

a. High cost of distribution through road transportation using trucks and delayed
turnaround of vessels.
b. Loss of live and property and treat to national security.
c. Over concentration of trucks at primary depots with attendant social, ethical and
safety problems.
d. Loss of revenue, which for the 1st half of 2000 is estimated to be over 4 billion
naira.
e. Environmental pollution.

f. Scarcity of products with its attendant social vice.

g. Loss of system’s flexibility in the distribution chain.

The current status of major equipment in the depots/pipelines nationwide as at June

2000 is shown below.

Table 2: Current Status of Major Equipment in the Depots/Pipeline Nationwide (as

at June 2000).

Equipment Description No No %
Installed Serviceable Serviceable
1 Main line pumps 84 46 55
2 Booster pumps 44 32 73
3 Loading pumps 234 157 67
4 Loading arms / meters 262 193 74
5 Generating sets. 104 60 58
6 Borehole pumps 40 28 70
7 Fire water booster 64 56 88
pumps
8 Transfer pumps 39 38 98
9 Fire trucks 30 26 87
10 Product tanks 268 239 89

B Road Transport
 The depots are strategically located to ensure short road haulage distances
within the Transport Differential Zone (TDZ). Owing to pipeline unavailability
for product pumping, PPMC has resorted to trucking of products by road beyond
the TDZ i.e. from the southern depots (Port Harcourt, Calabar, Enugu, Mosimi,
Lagos Satellite, Ibadan and Apapa) to other parts of the country. This method is
referred to as “bridging.

C Marine Transportation
Apart from the movement of products by pipeline and road, the NNPC/PPMC also
evacuates and supplies products to some facilities by sea and through time or spot
chartered vessels. Areas serviced by marine transportation are Port Harcourt, Warri
Calabar and Apapa.

D. Rail Transportation
The dearth of railway transportation also affects the movement of petroleum products,
which apart from the pipeline is the cheapest means of transportation over medium
distance. Several efforts were made in the recent past to resuscitate rail transportation
without success. Marketers with rail loading and reviewing facilities lost hope in rail
transportation of petroleum products due to its unreliability.

Major Problems Affecting Shortage and Distribution of Petroleum Product

a. Pipeline ruptures and vandalisation.
b. Old and obsolete equipment.
c. General attitude of staff to work, which is not in line with general
commercial practice.
d. Inadequate and agi ng
vessels.
e. Insufficient margins in the cost structure allowed for NNPC, oil marketers
and transporters that hinder investment in assets replacement or expansion.
 f. Existing delivery tankers are very old and in sorry state of operation;
compounding this problem is also the poor state of the roads and road
network.
g. Lack of flexibility in management. There seemed to be a concentration
authority at NNPC headquarters and government interference also hampers
operations.
h. Lack of empowerment and co-ordination in planning implementation
throughout the system.
From the table below, the prices in cents per litre went down in the year 2000 though
the retail price went up from N 20 to N 22 reflecting the effect of exchange rate.

Table 3. Cost Structure of Imported Products. (N per litre)

Cost Item PMS AGO DPK

Product (FOB 27.30 25.45 25.45
Rotterdam)
Frieght 1.58 1.84 1.84
Shuttle Vessel 0.59 0.69 0.69
NPA Charges 0.60 0.70 0.70
Financial charges 1.16 1.09 1.09
Demurrage 0.24 0.28 0.28
Throughput 1.00 1.00 1.00
Bridging 0.50 0.50 0.50
Marketer’s Margin 2.60 2.60 2.60
Dealer’s Margin 0.60 0.60 0.60
Transport’s 1.00 1.00 1.00
Margin
Subtotal 37.25 35.75 35.75
Tax 3.10 2.10 0.10
 Grand Total 40.35 37.85 35.85
Pump Price 22.00 21.00 17.00
(October 2000)
Loss 18.35 16.85 18.85
Source: NNPC, Marketer’s and Plat’s Oil Gram.
Source: The Dailies.

Table 3: Short-run Economy-wide effects of 10% increase in pump prices of

petroleum products.

Sector Effect on sectoral Effect on sectoral

input (% change) output (%
change)
1 Agriculture 0.20 -4.35
2 Livestock 0.00 -1.69
3 Forestry 0.60 -4.07
4 Fishing 0.60 -3.90
5 Petroleum 4.02 -3.37
6 Other mining 1.80 -3.33
7 Food 0.20 -6.28
8 Drink, Beverage and Tobacco 0.70 -3.84
9 Textile 0.60 -3.35
10 Footwear 0.90 -6.09
11 Wood 0.60 -7.26
12 Paper 0.70 -4.61
13 Drugs and Chemical 0.80 -4.39
14 Refineries 10.00 -5.72
15 Rubber and Plastic 0.20 -4.13
 16 Iron and Steel 2.10 -6.45
17 Fab. Metal 1.70 -5.98
18 Vehicle assembly 0.60 2.95
19 Other manufacturing 1.20 -2.81
20 Utilities 3.30 -4.83
21 Building and Construction 0.50 -1.87
22 Transport 6.20 -7.03
23 Communication 0.90 -1.05
24 Distributive trade 1.70 -3.44
25 Hotel and Restaurant 0.30 -1.83
26 Finance and Insurance 1.30 -6.67
27 Business Service 0.60 -4.70
28 Housing 0.60 -1.89
29 Commercial Service 0.30 -4.03
Source: NISER, Computed from Model Simulation Results

APPROPRIATE PRICING
There are some special features of an effective pricing mechanism and these are:
 In should result in full recovery of cost.
 It should result in fair petroleum prices to end users consistent with economic
and social policies.
 It should respond promptly to changing circumstances.
 It should include sustainable margins to all participants.
 It should be transparent and easy to administer.

Appropriateness of Price
By way of illustration, the different cost scenario of processing a composite barrel of
crude oil with current margin is as in the table below:
Table 4: Cost structure of a locally refined composite barrel at various indicative
price.

$9.50 $22 $25 $28

N N N N N
Crude oil cost/litre 6.30 14.70 16.70 18.70
Crude transportation cost 0.30
Refining cost 1.50
Distribution cost 1.45
Capital cost recovery (refineries) 1.50
Capital cost recovery (pipelines) 0.45
NNPC Overhead 1.00
NNPC Margin 1.00
7.20 7.20 7.20 7.20
Marketers, Transporters & Dealers Margins
i. Marketers 2.60
ii. Transporters 1.00
iii. Dealers 0.60 4.20 4.20 4.20 4.20
Bridging 0.50 0.50 0.50 0.50
Tax 3.10 3.10 3.10 3.10
TOTAL 21.30 29.70 31.70 33.70
Source: Review of supply & distribution of petroleum products report.

The organization of Petroleum Exporting Countries (OPEC) has indicated its

willingness to defend the band of $22 per barrel. This averages about $25 per barrel.
Therefore assume that OPEC mean price of $25 is a sustainable price. Using thrice,
PMS will be N 31.70 per litre. The level of price at the lower and upper and of OPEC
band is as in the table above.
In the cost of the composite barrel, however, when a barrel of product is refined, all
products are assumed to share same price and no losses. However, products such as
LPG, Wax, Fuel oil and Bitumen also result from the processing of the barrel of crude
oil. When prices of the prime – PMS, AGO and DPK products are relatively high, other
like LPG, Bitumen and Wax are very low, some are even of zero e.g. gas that is flared,
other have associated cost for their disposal. Therefore, in taking a realistic approach to
the calculation of prices, consideration must be given to products that are low and those
that have zero. It invariably means that N 31.70 per litre cannot be the average price.
This value can be compared to the values below for different levels of subsidy and
product values.

Table 5: Evaluated product prices for various subsidy levels.

Amount Billion N/Year Product Prices N/Litre

Subsidy Crude Crude Tax NNPC Mkt PEF PMS DPK AGO HPF
$/barrel Revenue Margin Margin
100% 0 0 23.29 119.76 56.63 6.80 14.65 12.46 13.92 9.09
80% 5 53.06 23.29 119.76 56.63 6.80 19.22 16.34 13.26 11.92
60% 10 116.13 23.29 119.76 56.63 6.80 23.78 20.21 22.59 14.74
40% 15 174.20 23.29 119.76 56.63 6.80 23.35 24.10 26.93 17.58
20% 20 232.27 23.29 119.76 56.63 6.80 32.92 27.98 31.27 20.41
0 25 290.33 23.29 119.76 56.63 6.80 37.48 31.86 35.61 23.24
NA 30 343.40 23.29 119.76 56.63 6.80 42.04 35.73 39.93 26.06
NA 35 406.47 23.29 119.76 56.63 6.80 46.61 39.62 44.28 23.90

Source: Report on the review of petroleum products prices.

Compatibility with Regional Prices.

When the price of PMS per litre in Nigeria is compared to other African countries, the
Nigerian price is quite low. From the table below, prices in the rest of Africa are much
higher than in Nigeria, although most are non-oil producing countries. Prices in the
developed countries are also higher than the prevailing rate in Nigeria. Comparing
Nigeria with other OPEC countries, our price seems to be within the same range. It
should be noted however, that these countries have much smaller population and longer
oil reserve than Nigeria.

Table 6: African/Global Price/GNP per Capita Comparisons.

Price GNP Capita

African Countries. N/Litre $/Litre $
Kenya 69.0 0.69 320
Ghana 39.0 0.39 360
Morocco 77.0 0.77 1,290
Chad 77.0 0.77 160
Senegal 63.9 0.639 570
Cot d’Ivoire 63.8 0.638 660
Togo 42.0 0.42 300
Cameroun 66.2 0.662 610
Guinea 65.4 0.654 560
Burkina Faso 70.9 0.709 230
Average 61.2 0.612 506
Nigeria 22.0 0.22 280
OPEC Countries
Venezuela 15.0 0.15 3,020
Kuwait 22.0 0.22 -
UEA (United Arab 26.0 0.26 -
Emirate)
Saudi Arabia 26.0 0.26 -
Global Countries
United Kingdom 90.0 0.90 19,600
USA 40.0 0.40 28,020
France 120.0 1.20 26,270
 Brazil 60.0 0.60 4,400
Japan 120.0 1.20 40,940

Understanding the Deregulation Phenomenon

Deregulation means that government will relinquish control of the refineries, depot,
pipeline network etc as far as provision of government funds of the
midstream/downstream sector of the petroleum industry in Nigeria bearing in mind that
the upstream sector is already deregulated.

Under deregulation of the midstream/downstream sector of the petroleum industry, the

refineries, depots and pipeline network will operate as profit centres.

The NNPC sell crude oil to the refineries which will be commercialized in preparation
for privatization and will pay for the cost of the crude oil and transportation by pipeline
to their storage tanks at export rates. This includes any private refinery that may be
established. Each refinery will then be expected to also sell their refined products at
international rates using their income to maintain their machinery and equipment.

This system will automatically ensure that any refinery that is not efficiently would not
be to compete and would consequently close down for a proper overhaul or be sold or
leased out to any party that is in a position to fix and run it. This will ensure that no
refinery will be a drain to the economy.

Similarly, each NNPC depot combined with its pipeline network will be a profit centre
in preparing for privatization and will be maintained from through put charges such that
any depot that is not viable will also be shut down so as not to be a drain to the
economy.
In addition to the creation of profit centres, it will now be reasonable to expect that
government will then be in a position to privatize the refineries, depots and associated
pipeline networks.

Further investments and subsidies in the downstream sector by the government would
then be stopped especially in terms of provision of free facilities to the major marketers
such as additional infrastructure at Mosimi, Atlas Cove and unlimited credit facilities.
Further expenses on facilities installed by NNPC for the Major marketers would be paid
for by the marketers who are the beneficiaries of the facilities so installed.

Additionally, generous credit facilities of up to 45-60days to the major marketers

without any collateral will cease and instead, all marketers (both major and
independent) will buy products from the NNPC or which ever refinery under normal
market conditions such as domestic letter of credit. This will enable NNPC to manage
its funds better and earn interest from same rather than the major marketers depositing
NNPC money with the banks and earning interest while the independent marketers are
borrowing from the same banks and still paying interest.

At the same time as deregulation and privatization are being effected government will
now have to decide whether it wants to control prices or not and to what degree. It is at
this stage that the government will now have to indicate through its budgetary process
how much it has to subsidize which product and suggest whether the subsidy should be
for petroleum products or whether it should be diverted to say, education, housing,
health, reduction of import duty on spare parts, automotive consumable such as raw
materials / consumable for tyre manufacturing, all of which affect the cost of vehicle
maintainance and hence, transport costs.
Once the industry is deregulated and government is still providing subsidy to retain
present prices, government will now be able to remove the subsidy at anytime subject
to the budgetary process.

This will avoid all the hue and cry of workers and generally of the people because
people will have to decide whether the approximately N 250b subsidy on refined
products sales and the approximately $200mp.a or N 20b spent on the refineries per
annum (total of N 200bp.a) should be spent on petroleum or on housing, education,
health etc.

Table 7: Effects of petroleum production on the economic system

S/N Impacts Mode Magnitude Significance Duration

1 Vegetation loss Direct Irreversible Adverse Short & long term
Consequences
2 Soil excavation Direct Irreversible Adverse Long tem
3 Loss of benthic Direct Irreversible Adverse Short & long term
fauna Consequences
4 Phytoplankton/ Direct Reversible Adverse Short & long term
Zooplankton Consequences
5 Surface water Direct Reversible Adverse Short term
contamination
6 Air quality Direct Reversible Adverse Short & long term
Consequences
7 Corrosion Indirect Reversible Adverse Short & long term
Consequences
8 Noise Direct Reversible Adverse Long term
9 Radiation Direct Reversible Adverse Long term
10 Transportation Direct Transient Adverse Short & long term
impact Consequences
11 Wildlife Direct Transient Adverse Short term
12 Human issues
1. Health Direct Reversible Long term Long term
2. Loss of Indirect Reversible Adverse Short/long term
income
3. Community Direct Irreversible Adverse Long term
conflict
4. Land loss Direct Reversible Adverse Short/long term
5. Employment Direct Reversible Beneficial Short/long term
Source: Current Economical Indicators.
RESEARCH METHODOLOGY, DATA PRESENTATION, ANALYSIS
AND INTERPRETATION
In this part, we are concerned with the degree of influence petroleum product pricing
has on the growth and development of the economy in terms of using some statistical
and analytical tools to test the relationship that exists among some variables.

It is hoped that at the end of this part, a reasonable and unprejudiced conclusion will be
deduced for the purpose of predicting future trends.

Restatement of Research Question and Hypothesis

For this study the hypothesis that would be stated in case the subject matter is not found
viable is the “null hypothesis”, symbolically represented by Ho; and the hypothesis for
accepting the validity of the subject matter is known as the “alternative hypothesis”,
symbolically represented by Ha.
Research Question: Is deregulation of petroleum product prices the viable
solution to the problems assailing the Nigerian petroleum
industry?

Research Hypothesis
1. Ho - That there exists no relationship between petroleum product prices
and GDP.
HA - That there exists a relationship between petroleum products prices
and GDP.
2. Ho - That there exists no relationship between petroleum product prices
and per-capital income.
HA - That there exists a relationship between petroleum products prices
 and per-capital income.

4.2.6 Statistical Tools

There various statistical tools for measuring the relationship between economic
variables, but the one to be employed in this research so that we can arrive at a
convincing conclusion is the regression analysis.

Regression Analysis
Regression analysis is the most frequently used techniques in economic and business
research. It is the process by which we establish a relationship between 2 or more
variables in terms of an equation, so that given the value of one variable; we can predict
the value of the other. In this research work, we are concerned with simple regression
analysis. Simple regression analysis is such that have only one independent variable.
Thus, we have a relationship like this:
Y = βo + β1 X + µ
Where Y = Dependent variable
X = Independent variable
µ = Stochastic variable or disturbance term.
βo = The intercept the parameters
β1 = The regression co-efficient of the function

The regression analysis assigns numeric value to the parameters of the function, which
is represented by the regression line i.e. the line of best fit. With some plausibility, the
argument

is that these numeric values are of paramount importance to the policy makers and the
entrepreneur.
 The significance of this model depends on the value of the parameters (βo and β1)
which explains the degree of relationship between the 2 variables and from which we
can interpolate and extrapolate unknowns.

4.3 Data Presentation

The table below shows a list of petroleum product prices, gross domestic product and
gross national product per capital for the period, 1985 – 2002. These figures would be
regressed to find the relationship that exists amongst these variables.

Regression Table
Table 14- List of PMS prices, GDP and GNP per capital from 1985 – 2002.

Year @1984 N N 1 Its PMS Prices

N’m GDP constant GNP per capital
1985 68,916.14 800.0 0.20
1986 71,075.87 660.1 0.395
1987 70,740.64 639.8 0.395
1988 77,752.32 686.0 0.42
1989 83,495.02 738.4 0.60
1990 90,342.04 1042 0.60
1991 94,614.07 1069 0.70
1992 97,431.39 1066 0.70
1993 100,015.16 1069 3.25
1994 101,334.78 1047.5 11
1995 103,506.96 1041.5 11
1996 107,029.22 1051.8 11
1997 110,397.04 1056.1 11
1998 112,948.31 1051.0 11
1999 116,110.06 1038.8 20
 2000 120,523.08 1046.8 22
2001 120,223.48 1062.8 22
2002 130,608.09 1060.3 26
Source: ii. CBN Annual Report and Statement of Account for the year ended
2001, 1998, 1994 etc.
ii. Federal Office of Statistics, Abstract of Statistics (Population)
iii. CBN major Economic and Financial indicators
iv. CBN Economic Financial Review Vol. 32 No 1: Prices of some
petroleum products.

4.4 Data Analysis and Interpretation.

Using regression analysis, we shall now analyze the data.
Model Specification.
It is hypothesized that the prices of petroleum products (specifically PMS) (X) greatly
influenced GDP (Y1) and GNP per capital (Y2).
Model 1
GDP = f (PMS)
Hypothesis
Ho: GDP is not influenced by PMS prices.
HA: GDP is influenced by PMS prices.
Y = βo + β1 X + µ
GDP = βo + β1 PMS
GDP = 83,110.887 + 1845.972 PMS………… (1)
SE (2853.392) (234.645)
t-statistic 29.127 7.867
R = 0.891
R2 = 0.795
Adjusted R2 = 0.782
F sig = 61.891
T sig = 0.000
Durbin Watson = 0.456
Standard error of the estimate = 8697.189
N = 18
(See Appendix 1)

Interpretation of Result.
In model 1, it is expected that there exists a positive and direct relationship between
prices of petroleum products and growth of the economy (GDP). The regression result
in this model conforms strongly to our apriori expectation. This is premised on the
result obtained by the slope showing a strong positive value. As such, any increase in
PMS prices, all things being equal, would have a very significant change in the value of
GDP to the tune of about 89.1% which represents the degree of correlation between
them. This implies that if PMS prices increase by N 1, GDP (in other words, growth)
will increase by 89.1% of that increase.
R2, the co-efficient of determination, shows the variability of the data away from the
observed value. It measures the goodness of fit. The higher the value of R2, the more
reliable the independent variable is in explaining the dependent variable. From the
analysis above, the adjusted R2 is 0.782. This shows that PMS prices play a relative big
role explaining GDP (growth).

The t-test statistics is used to test how significant the contribution of an explanatory
variable is to variation in the dependent variable. It tests the significance of the
parameters of the explanatory variables.

Durbin Watson test proved significant at the same level of 5% where DW = 0.456
indicating the presence of auto-correlation. The standard error of the estimate at
8697.189 shows the effect of some exogenous variables affecting the GDP. Exogenous
variable affecting the GDP include government policies on oil production, social unrest,
OPEC quotas etc.
Further test of the hypothesis using the f-test statistics show that f calculated is 61.891
while the table value is 0.001. Since f calculated > f tab, we accept HA and reject Ho
hypothesis. In Nigeria, the prices of petroleum products have a great influence on GDP.
In all, this model shows that when prices of petroleum increase, GDP will increase
proportionately.

Model 2
GNPPC = f (PMS)
Hypothesis
Ho: GNPPC is not influenced by PMS prices.
HA: GNPPC is influenced by PMS prices.
Y = βo + β1 X + µ
GNPPC = βo + β1 PMS
GNPPC = 872.328 + 10.016 PMS

SE (46.442) (3.819)
t-statistics 18.783 2.623
R = 0.548
R2 = 0.301
Adjusted R2 = 0.257
F sig = 6.878 0.018
T sig = 0.018
Durbin Watson = 0.441
Standard error of the estimate = 141.56 N = 18
Interpretation of Result.
In model 2, it is expected that a positive and direct relationship exists between prices of
petroleum products and GNP per capita (in otherwords, development of the nation).
The regression result in this model establishes that there is a positive relationship
between the two variables, albeit a weak one. This is shown by the positive value of the
slope of the regression line. The degree of correlation between the 2 variables is 54.8%,
as such; increases in petroleum product prices would have not too strong influences on
the development of the nation.

R2, the co-efficient of determination, shows that 25.7% of GNP per capita is influenced
by PMS prices. This shows that increases in petroleum products prices do not bring
about a proportional development of the economy; the impact on development is rather
insignificant.

The Durbin Watson test shows the level of auto-correlation between the 2 variable at
0.441. The standard error of the estimate is 141.56. The f-test shows that f calc is 6.878
while f tab is 141.56. Since f calc > f tab, we accept HA and reject Ho.

In all, the model establishes that although a relationship exists between petroleum
products pricing and development of the nation, it is not a strong one at about 25.7%.
For further analysis on the effect of the deregulation of petroleum products prices on
the growth and development of the nation, I would like to apply the regression
functions in both model to a table presented in Chapter 3-Evaluated products prices fro
various subsidy levels.

Subsidy Crude Price of GNPPC

% $/b PMS Y = 872.33 + 10.02 PMS
100 0 14.65 1019.123
80 5 19.22 1064.914
60 10 23.78 1110.606
40 15 23.35 1106.297
20 20 32.92 1202.188
0 25 37.48 1247.880
NA 30 42.04 1293.571
NA 35 46.61 1339.362
Subsidy Crude Price of GDP
% $/b PMS Y = 83,110.9 + 1846
PMS
100 0 14.65 110,154.8
80 5 19.22 118,591.02
60 10 23.78 127,008.78
40 15 23.35 126,215
20 20 32.92 143,880.32
0 25 37.48 152,298.98
NA 30 42.04 160,716.74
NA 35 46.61 169,152.96

From the above tables, we can see that at various levels of subsidy removal, both GDP
and GNP per capita will be affected, however, at different degrees. Comparing these
figures to the actual GDP and GNP per capita figures above, we can see that the
country has a better potential for growth ands development if petroleum products prices
are deregulated, their determination left to the market for of demand and supply.
SUMMARY, FINDINGS, RECOMMENDATIONS AND CONLUSION.
SUMMARY
Deregulation has become a household word in Nigeria as government moves to find
lasting solutions to the problems of the petroleum downstream sector involving
refining, distribution and marketing. The option is based on the state’s conviction that
total deregulation will relief the state of billions of naira yearly burden it bears in the
process of delivering products to consumers.

This research set out to examine whether the call for deregulation is justified or not and
whether deregulation is the most viable solution to the problems assailing the
downstream petroleum industry of Nigeria.

FINDINGS AND CONCLUSION

The perennial shortage of petroleum products, the high cost of producing and importing
them and the subsidized price are basis of the petroleum crisis in this sector in Nigeria.
The dimension of crisis in petroleum products can be attributed to both institutional and
structural factors.
The institutional problem is caused by public sector dominance of both the production
and distribution of petroleum products. There is a high level of inefficiency given the
incessant breakdown and malfunctioning in the 4 (four) refineries. NNPC, which is
charged with the management of petroleum resources, complains of shortage of
working capital and poor margins that hardly cover the cost of production.

The public sector control of the prices of petroleum products has created distortion
between the prices in Nigeria compared with those of neighbouring countries. This has
resulted in the smuggling of petroleum products from Nigeria to the neighbouring
countries and escalation of the prices of petroleum product in the black market.

The structural problem of petroleum products has to do with the breakdown of

refineries due to poor maintainance, shortage of working capital, spare parts and
catalysts. Another structural has to do with poor and inadequate system of distributing
petroleum products.

This research work examined aspects of petroleum crisis in Nigeria which was defined
as the situation where a country with abundant endowment of petroleum resources, the
capacity to develop and the market to dispose of them, ends up not having enough
supply to meet the demand, importing rather than exporting petroleum products and
paying abnormal prices for scarce and sub-standard petroleum products.

A review of the supply and distribution of petroleum products reveals that the
downstream sector of the petroleum industry is operating sub-optimally and indeed
threatens to atrophy for the following reasons:
1. Domestic supply through the refineries has been eroded over time and it would
require massive investment in existing refineries to restore capacity therefore,
reliance on imported products will persist for as long as it takes to restore
refining capacity.
2. The distribution system is blighted and years of denial of renewal investment
and pressure exerted on the system as the switch to massive importation
emerged, has meant further deterioration of the storage and pipeline capacity. It
would require substantial investment in order to restore the ability to have a
reliable distribution system.
3. Petroleum products marketers, transporters, station operators, Industrial
converters and all those deriving sustenance from the sector are unhappy
because of the shortages and also because the prevailing cost and price structures
are badly distorted, such that returns on capital invested are dismal and are
encouraging malpractices which in turn hamper an efficient supply and
distribution system.
4. The monopolistic position of a single player, NNPC left in the system aided by
government control of prices have prevented the entry of other players who
 could have ameliorated the bottlenecks through involvement in the supply and
distribution chain.

Other findings of the study are:

1. Government subsidy on petroleum products has never made economic sense and
never will because it is not enjoyed by the people for which it is meant, so it has
been a question of when rather than whether or not the subsidy will be removed
in any process of rationalization for reviving the economic fortunes of our
country.
2. Let there be no mistake about it, the benefit of subsidy does not go to the
majority of Nigerians; Non-Nigerians and smugglers are the greater
beneficiaries.

3. Whatever the apparent benefits of subsidy on petroleum products, such benefits

are superficial and contradictory in the context of economic planning that will
yield maximum benefits to maximum number of Nigerians.
4. Education, healthcare delivery, portable water, electrification and transportation
facilities are essential areas needing higher subsidies.
5. The only permanent solution to fuel scarcity will be to sell at prices that will
enable proper maintainance of distribution and supply facilities.
6. The effect of deregulation will most probably translate into increase in price and
the effect of this increase on majority of Nigerians will not be easy in short run.

Other findings fundamental to the deregulation of petroleum products

prices in Nigeria are:
1. The cost of importing petroleum products, particularly PMS has become
prohibitive as government endeavours to augment the domestic output that still
does not meet the current demand.
2. Government also claims that the pumping price over which it places a lead is not
sufficient to meet the various cost elements to make importation profitable and
 encourage the importers to remain in the business which government alone
cannot shoulder.
3. The cost of supplying crude to the domestic refineries is rather low compared to
the price of crude oil in the international market.
4. If only government can run NNPC and the refineries so that the latter can
produce at capacity, the rate of importation of petroleum products will
drastically reduce.

Anticipated Benefits of Deregulation includes:

1. Disciplined consumption, that is, consumption habits will be put under control.
2. An appropriate petroleum price will thin down the army of cross border
smugglers.
3. Deregulation will curtail corruption in the handling of the products domestically
and give a commercialized NNPC an incentive to be more efficient and profit
oriented.

5.3. CONCLUSION
Without contesting the assumption that deregulation involves withdrawal of subsidy
and even privatization, I think I can safely state that deregulation is a wise decision
however; there is a need to prepare an enabling environment for it to succeed.

In Nigeria, good examples of services where deregulation will and has certainly led to
consumer benefits are the services provided by NEPA, NITEL and the banking
industry. For instance, at NEPA, the charges are said to be at subsidized rates. The cost
of that subsidy is of course paid through direct government subvention but the services
provided to the consumer is so inadequate that most users are obliged to buy and
operate standby generators. When account is taken of the cost of installing and
operating a generator, it is clear that the price paid by the consumer for the supply of
electricity in Nigeria is far higher than anything that obtains anywhere in the world.

In the case of NITEL and the telecommunication industry, prior to deregulation, what
obtained was a very high cost of obtaining telephone lines and inefficient services,
however, with deregulation, not only were more jobs created, the cost of acquiring
telephone lines dropped substantially and the services are more reliable and efficient
with new innovative technologies.

In case of the banking industry, prior to deregulation, bankers were fond of holding the
entire country to ransom through strike actions by their unions. But since the
deregulation of the sector, not is Nigerians now enjoying quality service delivery, none
has suffered as a result of bankers strike actions.

The point is that deregulation is not necessarily bad for the consumer and that it can and
usually works to his greater advantage. Deregulation of petroleum does not contest the
fact that supplies would improve and save consumers of the anxiety they suffer
frequently.
This point is always conveniently ignored rather the focus is on the presumption that
the deregulation of petroleum products prices and implicitly, the withdrawal of
subsidies would lead to an increase in price, which would then have a multiplier on
prices in the whole economy and would therefore work to the disadvantage of the
“common man”. It should be noted that this is not always so and even when it occurs,
does so only in the short run.

Regarding subsidy, the issue is not the subsidy itself which is necessary in any country
in one form or the other, but rather, who gets the subsidy, or more to the point, who
should get any subsidy provided. This is important because in principle, the only
justification for a subsidy is that it gives greater benefits to the weakest consumers in
the economy – the common man that to the better off. Any subsidy that gives more to
the rich than to the poor is morally indefensible.

From all indications, the petrol subsidy in Nigeria does not meet this criterion because
quite clearly, it benefits the rich a lot more than it benefits the poor. The clear
conclusion that should be drawn from all the foregoing is that a big part of the subsidy
provided through petroleum prices, is actually going to unintended beneficiaries and the
distribution of what is left is distributed in favour of the rich, not the poor which
therefore makes subsidy in its present form, morally unjustifiable.

Subsidization is not a wise use of resources, from an efficiency of view, it will be best
for Nigeria to set the domestic price of petroleum equal to the world market price
(assuming no market imperfections). From an equity point of view, subsidies can be
further compounded by smuggling and corruption. From a fiscal perspective, the
opportunity costs of these subsidies are substantial. Despite the substantial costs of
implicit petroleum subsidies, reform is difficult as there is strong popular opposition to
their elimination.
 If the government however, decides to retain NNPC as the sole importer of petroleum
products, which will be sold at subsidized prices (i.e. a regulated environment then
government should ensure that:
1. The value of the naira in relation to the dollar is stabilized by continually
intervening in the parallel market through well-organized bureau de
change and other financial institutions. This will serve to keep the naira
steady so as not to widen the gap between prices of petroleum products in
Nigeria and those of neighbouring countries.

2. The borders are well policed to reduce or stop smuggling. The trade
unions may be of use here.
3. Marketer’s, dealers’ and transporters’ margins must be increased and
indexed to the exchange rate to ensure equitable distribution to all the
nooks and corners of the country.
4. The refineries must be completely overhauled with a view to their
resuming operations profitably and efficiently.
5. Encouraging the neighbouring countries to import their own products
directly and arrange a pact with them, which will enable joint monitoring
of product movement.

It is obvious from the steps needed to be taken in a regulated environment that it is

really going to be difficult, if not possible, to maintain fixed control prices of products
nationwide. Rather than engage in wishful thinking and forcing government to keep
petroleum products prices constant and available, can we force the same government
through the Central Bank to keep the naira steady?
If we cannot force the government to keep all input variables in the petroleum supply
equation constant and we cannot control the cost of other social needs such as housing,
food, clothing etc. and we also cannot control the prices of fuel in neighbouring
countries, the it will be impossible to achieve the goal of making fuel available at a
fixed controlled price. Rather than deceiving ourselves and insisting that petroleum be
sold at fixed prices over the past years, let us face reality by accepting the forces of
demand and supply. You cannot use a dam to force the ocean waves from flowing.
The solution to the perennial fuel shortage in the country is one thing all Nigerians must
rise up to with sound economic rather than political logic. Refusing to take the decision
(of subsidy removal) now would merely increase the price of that decision in the future
and defeat the declared desire to lay a solid foundation for accelerated growth and
development in the future.

Recommendation
Inevitable as deregulation is, it is incumbent on government to also meet the challenges
of the living condition of the populace. Against this background, the following
recommendations are proffered for the development of Nigeria’s petroleum industry:

1. I recommend a reform of petroleum pricing policies. Subsidy reform

should embed in a reform programme that engenders broad support and yields
widespread benefits. This could include the use of countervailing measures and
vigorous publicity campaigns, which educate the population on the trade offs
involved in providing subsidies versus other social services. The speed of
subsidy reform will depend on the required size of fiscal adjustment, the
availability of social protection instruments, the strength of government and the
administrative capacity to implement reforms.
2. The sector could be salvaged by a combination of policies which will
generate the infusion of funding to restore domestic refining capacity, reduce
reliance on import, repair the distribution network and encourage other players
through fair returns to their efforts, while ensuring a competitive and efficient
network hinged on minimum government control.
3. The government should put in place a master plan that would develop the
downstream sector of the gas industry and de-emphasis the current almost total
reliance on petroleum.
 4. That the government should put in place a competitive master plan for the
development of the petrochemical industry.
5. The country ought to design sensible policies in order to fashion a linked,
inter industry profile of a petroleum sub-sector which would encourage the
massive investment required to optimize the production of further inputs into the
manufacturing sector such as petrochemicals.
6. The government should define its obligation to the communities to avoid
disappointment because of the instill patriotism in all Nigerians through selfless
leadership by example.
7. Make the best use of electronic and print media to convey the ills of
vandalization of pipelines, smuggling, hoarding and others, to the orderly growth
of the industry.
The best recommendation for the future is for the government, while
implementing deregulation, to provide an enabling environment for it to succeed
and benefits the majority of Nigerians through adequate social protection
mechanisms.

A more transparent and efficient supply; distribution and pricing of the nation’s
petroleum resources will chart the course for a greater Nigerians and meeting the
yearnings and aspirations of our people. God bless Nigeria. Amen.

5.5 References

1. 2002 IMF Working Paper - Issues in Domestic petroleum pricing

in oil producing countries prepared by
Sanjeer Gupta, Benedict Clement,
Kevin Fletcher and Gabrialla
Inchauste.
2. Nigerian Energy Digest - Series of volumes

3. CBN Bullion

4. Olaleye S.O. - Lecture note (Petroleum Economics),

LASU.

5. Post Projects.

6. The Dailies - Tell, Punch, Guardian,

National Interest, Comet, This Day etc.
Regression
Descriptive Statistics

Mean Std. Deviation N

GNP 957.05000 164.214624 18
PMS 8.45889 8.989669 18

Correlations

GNP PMS
Pearson Correlation GNP 1.000 .548
PMS .548 1.000
Sig. (1-tailed) GNP . .009
PMS .009 .
N GNP 18 18
PMS 18 18

Variables Entered/Removedb

Model Variables Entered Variables Removed Method

1 PMSa Enter
a. All requested variables entered.
b. Dependent Variable: GNP
Model Summaryb

Model R R Square Adjusted R Std. Error of

square the Estimate
1 .548a .301 .257 141.556633

Model Summaryb

Change Statistics
Model R Square Durbin -
Change F Change df1 df2 Sig. F Change Watson
1 .301 6.878 1 16 .018 .441
a. Predictors: (Constant), PMS
b. Dependent Variables: GNP

ANOVAb

Model Sum of df Mean F Sig.

Squares Square
1 Regression 137817.04 1 137817.038 6.878 .018a
Residual 320612.49 16 20038.280
Total 458429.53 17
a. Predictors: (Constant), PMS
b. Dependent Variables: GNP
 Coefficientsa

Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 872.328 46.442 18.783 .000
(Constant) 10.016 3.819 .548 2.623 .018
PMS
 Coefficientsa

95% Confidence Interval for B

Model Lower Bound Upper Bound
1 (Constant) 773.875 970.781
PMS 1.920 18.112
 Coefficientsa

correlations Collinearity Statistics

Model Zero – order Partial Part Tolerance VIF
1
(Constant) .548 .548 .548 1.000 1.000
PMS
a. Dependent variable: GNP

Coefficient Correlationsa

Model PMS
1 Correlation PMS 1.000
Covariances PMS 14.586
a. Dependent Variable: GNP

Collinearity Diagnosticsa

Condition Variance Proportions

Model Eigenvalue Index (Constant) PMS
Dimension
1 1 1.696 1.000 .15 .15
2 .304 2.360 .85 .85
a. Dependent Variable: GNP
Casewise Diagnosticsa

Case Number Std. Residual GNP Predicted Residual

Value
1 -.525 800.000 874.33107 -74.33107
2 -1.527 660.100 876.28414 -216.18414
3 -1.671 639.800 876.28414 -236.48414
4 -1.346 686.000 876.53453 -190.53453
5 -.989 738.400 878.33737 -139.93737
6 1.156 1042.000 878.33737 163.66263
7 1.340 1069.000 879.33894 189.66106
8 1.319 1066.000 879.33894 186.66106
9 1.159 1069.000 904.87909 164.12091
10 .459 1047.500 982.50112 64.99888
11 .417 1041.500 982.50112 58.99888
12 .490 1051.800 982.50112 69.29888
13 .520 1056.100 982.50112 73.59888
14 .484 1051.000 982.50112 68.49888
15 -.239 1038.800 1072.64284 -33.84284
16 -.324 1046.800 1092.67433 -45.87433
17 -.211 1062.800 1092.67433 -29.87433
18 -.512 1060.300 1132.73731 -72.43731
a. Dependent Variable: GNP
Residual Statisticsa

Minimum Maximum Mean Std. N

Deviation
Predicted Value 874.33105 1132.7373 957.05000 90.038240 18
Residual - 189.66106 .00000 137.330106 18
Std. Predicted Value 236.48415 1.951 .000 1.000 18
Std. Residual -.919 1.340 .000 .970 18
-1.671
a. Dependent Variable: GNP
Regression
Descriptive Statistics

Mean Std. Deviation N

GDP 98725.759 18616.523528 18
PMS 8.45889 8.989669 18

Correlations

GDP PMS
Pearson Correlation 1.000 .891
GDP .891 1.000

PMS
Sig. (1-tailed) . .000
GDP .000 .

PMS
N 18 18
GDP 18 18

PMS

Variables Entered/Removedb

Model Variables Entered Variables Removed Method

1 PMSa Enter
a. All requested variables entered.
b. Dependent Variable: GDP
 Model Summaryb

Model R R Square Adjusted R Std. Error of

Square the Estimate
1 .891a .795 .782 8697.189338

Model Summaryb

Change Statistics
R square
Model Change F df1 df2 Sig. F Durbin -
Change Change Watson
1 .795 61.891 1 16 .000 .456
a. Predictors: (Constant), PMS
b. Dependent Variable: GDP

ANOVAb

Model Sum of df Mean Square F Sig.

Squares
1 4.68E + 09 1 4681516482.3 61.891 .000a
Regression 1.21E + 09 16 75641102.375
5.89E + 09 17
Residual
Total
a. Predictors: (Constant), PMS
b. Dependent Variable: GDP
 Coefficientsa

Unstandardized Standardized
Coefficients Coefficients
Model B Std. Beta t Sig.
Error
1 83110.887 2853.392 29.127 .000
(Constant) 1845.972 234.645 .891 7.867 .000
PMS
 Coefficientsa

95% Confidence Interval for B

Model Lower Bound Upper Bound
1 (Constant) 77061.966 89159.809
PMS 1348.547 2343.397
 Coefficientsa

Correlations Collinearity Statistics

Model Zero – order Partial Part Tolerance VIF
1
(Constant) .891 .891 .891 1.000 1.000
PMS
a. Dependent variable: GDP

Coefficient Correlationsa

Model PMS
1 Correlation PMS 1.000
Covariances PMS 55058.139
a. Dependent Variable: GDP

Collinearity Diagnosticsa

Condition Variance Proportions

Model Eigenvalue Index (Constant) PMS
Dimension
1 1 1.696 1.000 .15 .15
2 .304 2.360 .85 .85
a. Dependent Variable: GDP
 Casewise Diagnosticsa

Case Number Std. Residual GNP Predicted Residual

Value
1 -.1.675 68916.14 83480.0816 -14563.94
2 -1.468 71075.87 83840.0461 -12764.18
3 -1.506 70740.64 83840.0461 -13099.41
4 -1.705 77752.32 83886.1954 -6133.875
5 -.083 83495.02 84218.4704 -723.45036
6 .704 90342.04 84218.4704 6123.5696
7 1.174 94614.07 84403.0676 10211.002
8 1.498 97431.39 84403.0676 13028.322
9 1.254 100015.2 89110.2962 10904.864
10 -.239 101334.8 103416.579 -2081.799
11 .010 103507.0 103416.579 90.38052
12 .415 107029.2 103416.579 3612.6405
13 .803 110397.0 103416.579 6980.4605
14 .096 112948.3 103416.579 9531.7305
15 -.451 116110.1 120030.328 -3920.268
16 -.368 120523.1 123722.272 -3199.192
17 -.402 120223.5 123722.272 -3498.792
18 -.057 130608.1 131106.160 -498.06994
a. Dependent Variable: GDP
Residual Statisticsa

Minimum Maximum Mean Std. N

Deviation
Predicted Value 82480.078 131106.16 98725.759 16594.677535 18
Residual -14563.94 13028.322 .00000 8437.513008 18
Std. Predicted Value -.919 1.951 .000 1.000 18
Std. Residual -1.671 1.498 .000 .970 18
a. Dependent Variable: GDP
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Solutions.

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chain in Nigeria’s external relations. A publication of
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CBN Bullion

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Geneva – ILO.

Dele Aborishade : The legal implications of deregulating the

downstream sector of oil and gas industry in Nigeria.

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seminar organized by the then Ministry of Petroleum
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(Spanning the period of Jan 2001 – June 2001).

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distributors, The Guardian, 4/1/04:13.

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Odun V.I. (2000) : A NNPC Journal “NAPETCO” Pg 23-24.

Olaleye S.O. (2002) : A lecture note during the petroleum economic class.

Onimode B. (1983) : Multinational corporations in Nigeria.

Onoh J.K. : The Nigerian economic – Impact of oil on the

Nigerian economy.
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Phillips A.O. : “The Nigeria economy and Oil crisis”.

Privatization and commercialization Act of 1988 Cap 369 LFN 990 (which has
been repealed by the Bureau of Public Enterprises Decree No. 78 of (1993).

Quinlan M. (1980) : Energy in the developing world.

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October 2000.

Rimmer (1981) : Oil windfall in Nigeria.

Roberts F.O.N. (1994) : Blessing or curse – federalism, minorities and

political contestation in Nigeria.

Sanjeev Fupta, Benedicts Clements,

Kevin Fletcher and Gabriella Inchauste
(2002) : Issues in domestic petroleum pricing in oil
producing countries – IMF working paper.

Soremekun K. and Obi C. (1993): Oil and the national question.

The Dailies - Tell, Punch, Guardian, National Interest, Comet,

This Day etc.

REFERENCES:
1. Adams G.A. (1998) :Energy crisis in Nigeria-causes, effects and solutions.

2. Adams G.A. (1994) :The NNPC and its Travail. The Guardian 13/4/94: 43

3. Akanbi O. (1984): Policies and Practices for Marketing refined Petroleum

products- Conference on strategies for the 5th national development plan, 1986,
1990, Niser Ibadan 28th November.

4. Alli A.L.:Oil in the World energy context. London (1972).

5. Amu L.O.A. : The Nigerian Oil Economy, NNPC Lagos.

6. Anyaele (1994):Comprehensive economics for secondary

school.

7. Aribisala F.: Nigeria in OPEC- the weakest link in the Cartel Chain in
Nigeria’s external relations. A Publication of the NIIA.

8. Asiodu P.C. (1979) :Modern Nigeria Longman Group

9. Aminu J. (1986):Nigeria and the work of Oil.

10. Babangida I.G. (1986) : Nigerian Oil Industry since 1985; A

publication of The NNPC.

11. Bafyou P. (1989) :The 1989 budget and the workers, press Release by NLC.

12. Bienen H. Nigeria : From the windfall gains to welfare losses.

13. Collier P. (198):Oil shocks and food scarcity in Nigeria, Geneva-ILO.

14. Dele Aborishade:The legal implications of deregulation the Downstream sector
of the oil and gas industry in Nigeria.

15. Emenuga (1994):An editorial note in the industrial breeds.

16. Eromosele V.:Nigerian Petroleum Business.

17. Gelb A.:Oil- blessing or course Pg 227.

18. Guy A. (1979):Nigeria and oil question – NEC.

19. J.K. Onoh:The Nigerian economy- Impact of oil on the Nigeria Economy.

20 Likman R. (1989):Statutory control of the petroleum industry- A

seminar organized by the then Ministry of Petroleum Resources.

21. Mufwang P.M.:The state oil and socio-economic transportation in Nigeria- A

critical appraisal on NNPC.

22. Muhammed A.S. (1989) : Petroleum and Energy.

23. M.O. Kayode &Y.B. Usman:Nigeria since independence. The first 25 years.

24. Nigeria Energy Digest:Fortnightly focus on Africa’s major Energy

Nation.(Spanning the period of Jan 2001 – June 2001).

25. NNPC (1994 :The Sharp practice by some petroleum Products Distributors, the
Guardian, 4/1/94: 13.
26. Nwakwo J.N. (1984):Oil and environmental pollution paper Presented at the 5th
National Development Plan.

27. Olaleye S.O. (2002) :A lecture note during the petroleum economic class.

28. Onimode B. (1983) : Multinational corporations in Nigeria.

29. Philips A.O. (1988) : The Nigerian economy and the oil crisis.

30. Privatisation and Commercialisation Act of 1988 Cap 369 LFN 1990 (which has
been replaced by the Bureau of Public Enterprises Decree No. 78 of (1993).

31. Quilan M. (1980) : Energy in the developing world.

32. Rimmer (1981) : Oil windfall in Nigeria.

33. Roberts F.O.N. (1994) : Blessing or curse – federalism, minorities and

Political contestation in Nigeria.

34. Soemekun K. and Obi C (1993): Oil and the national question.

35. Sanjeev Fupta, Benedicts Clements, Kevin Fletcher and Gabriela Inchauste
(2002) Issues in domestic petroleum pricing in oil producing countries – IMF
working paper.

36. The Guardian:Period spanning Jan 2001 – June 2002.

37. The punch : Period spanning Jan 2001 – June 2002.

38. The Post Express : Period spanning Jan 2001 – June 2002.
39. Tell Magazine.

40. This Day Newspaper.

41. The News.

1. CBN Economic and Financial Review : Determining the price of

Petroleum Products in Nigeria
and the issue of price subsidy.

2. E.A. Onwioduokit and A.O. Adenuga 9199): Consumption of petroleum

products.

3. Nigeria Economic Summit Group NESG Economic Indicators (June 2000).

4. Numerous CBN Bullions.

5. Past Projects.
 6. Report on the review of petroleum products supply and distribution in Nigeria,
October 2000.

7. The National Dailies.

5.5 Suggestions for Further Studies.

1. Optimizing the employment generating and wealth creating potentials of the
downstream sector of the Nigerian petroleum industry.
2. The development of the petrochemical sector as an agent of economic growth
and development.