Legal Framework Issues on Deregulation and Commercialisation of the Downstream Oil Sector in Nigeria

ABSTRACT

The concept of oil and gas was limited to the search for, work and win crude oil. For decades, nations only concerned themselves with upstream petroleum activities. The availability of crude oil determines the extent of relevance a nation commanded at the global scene. This fact is amplified by the role Nigeria played in the struggle to rid Africa of colonial vestiges. The marketing of petroleum products (downstream sector activities) is therefore brought to the fore of the national petroleum industry. The issues of oil and gas in Nigeria are very topical and sensitive. The products of oil and gas are present in every home in Nigeria. Arising from this, the government became very much involved in the supply and distribution of its product. Various laws, including the Petroleum Equalization Fund (Act) Instituted as a result of the problems associated with the petroleum distribution, were put in place to govern the petroleum industry. However, there appear to be inconsistencies between these laws and what actually obtains. This research principally adopted a doctrinal research methodology which relied on existing statutes, subsidiary legislation and literature on petroleum products marketing. It analyzed the issues and drew inferences which culminated in the findings. This dissertation found that the legal framework for the regulation of the downstream sector of the petroleum industry is not robust and comprehensive; that there is conflict of functions between the Petroleum Minister and the Petroleum Products Pricing and Regulatory Agency. This is with respect to the fixing of the prices petroleum products. This conflicting function does not make for improvement of effective pricing of petroleum products as it does not allow market forces to determine the price; that the functions of government regulatory agencies such as the Nigerian National Petroleum Corporation (NNPC), the Department of Petroleum Resources (DPR), the Petroleum Products Marketing Company (PPMC) and the Petroleum Products Pricing and Regulatory Agency (PPPRA) are overlapping and therefore work at cross purposes; that the Petroleum Equalization Fund put in place for the sole purpose of unifying the pump prices of petroleum products across the country is ineffective, fraught with corruption and has resulted in waste of financial resources; and that government involvement in downstream activities makes law enforcement weak and ineffective. This paper therefore recommends a restructuring and reforming of the legal framework and regulatory bodies for the Nigerian Petroleum Industry through the passage of the Petroleum Industry Bill (PIB); existing laws should be reviewed for effective regulation with the roles of government agencies clearly defined; that the Petroleum Equalization Fund be repealed; and that government should exit participating in the downstream sector (through the Nigerian National Petroleum Corporation) and only be a regulator. Despite  the  vast  potential  Nigeria  has  as  an  oil  country,  its downstream sector production has failed to meet up with the demand of the populace, leading to shortages in fuel, long queues at pumps; and the claim of heavy subsidization in the importation of fuel by the government to meet the demand. To reverse this trend and to address this crisis in the downstream, the government deregulated the sector. The oil industry has witnessed multiple changes and policy effects. The question is the availability of an alternative remedy to the situation, the best post-deregulation handling moves and the  sufficiency  or  otherwise  of  the  legal  framework  and  the regulatory  body  on  ground  and  what  can  be  done  about  their inadequacies.

INTRODUCTION

The downstream oil industry is a key sector in the nation’s economy. It includes four refineries. Problems such as fire, sabotage, poor management, lack of turn-around maintenance and corruption have meant that  the  refineries  often  operate  at  forty  percent  of  full  capacity.  This results in shortages of refined products and the need to increase imports to meet domestic demand. In  spite  of  the increase  of  imports,  petroleum  products  are  still  largely unavailable.  This led to  an arbitrary increase in fuel price, leading further to the increase in the prices of foodstuff, transportation fares and other services, which in turn has invariably plunged citizens into further economic hardship.

In  order  to  salvage  the  downstream  oil  industry,  the  government realised that it will be necessary to boost production levels of the refineries but  at  a  huge  cost.  They  decided  to  invite  local  marketers  to  apply  for licenses  to  build  private  refineries.  This failed as the  marketers, solely  driven  by  profit were  not  interested  while government still controlled the pump price of gas. Government  decided  that  it  was  necessary  to  deregulate  the downstream sector in the country for its improvement. However, Since  the  implementation  of  the  deregulation  policy  in  the downstream sector, the question to ask is, has the policy been suitable and what legal framework can be established to improve the policy and to fill the loopholes in it, if any?

HISTORY OF THE NIGERIAN OIL ECONOMY

1960 brought for us political independence with an economy major and dominant on agriculture. In 1956 oil was discovered in commercial quantity in Oloibiri, Nigeria and the first export began in 1958. In the first four years of Nigeria's post-independence economy (1960-1964), agriculture contributed 62.5 percent to the nation's Gross Domestic Product (GDP), and over 75 percent of the workforce was engaged in the agricultural sector.  By 1970 the share of contribution of the  agricultural  sector  to  the  nation's revenue had risen to 70 percent while that of petroleum sector was only 26.3 percent. The  production  of crude  oil  in  Nigeria  advanced  to 2.16  million  barrels  per  day  and  its  revenue  increased. Agriculture was then neglected leading a decline in its contribution to the GDP and foreign exchange earnings. Oil and  gas  now account  for  95% foreign  exchange  earnings  and about  65% of its budgetary  revenues while  agriculture  contributed  43.64% instead of 70%  in 1970,  and  petroleum  14.27%  to  the  nation’s  GDP  respectively.

Nigeria remains the world’s 14 the largest producer of crude oil and 10th  in gas. Nigeria has four petroleum refineries, two of which are located in Port Harcourt, one each in Kaduna and Warri  with a combined installed capacity of 445,000 barrels per day  including a large network of pipelines and depots strategically located. These refineries are said to be operating about 26% capacity utilisation due largely to political interference in  the management of the nation’s refineries and the preposterous lack of crude to refine. The resultant effect, therefore, is that Nigeria now largely exports  crude  oil and gas through the Nigerian  National Petroleum Corporation (NNPC) and the Nigeria  Liquefied Natural Gas  Limited (NLNG)  for her  foreign exchange  earnings  and  depends  on  importation  of  refined  petroleum  products  for  consumption  by  her  teeming population.  Nigeria’s  daily  consumption  40  million  litres  of  petroleum  products  (premium motor  spirit)  far  outweighs  daily  production  of  all  the  five  refineries,  resulting  in  over dependence on imported refined products.

By 1994, the petroleum sector experienced crisis in terms of its inability to contribute to the nation's infrastructural development. As a result, the Nigerian National Petroleum Corporation (NNPC), the  state owned petroleum company issued 'a marching order' of a 'drastic measure' to stem supply-price crisis of the oil sector by marketers, who  smuggled  and  diverted  petroleum  products  to  illegal destinations for higher profits than what was obtainable in the country. The assumption is that the petroleum marketers in Nigeria are able  to  smuggle  the  products  across  borders  in  order  to  make higher profit due to the  lower price charged by the government. However, it was in a bid to alleviate the suffering of the people against  inappropriate  pricing  of petroleum  products  in Nigeria that  made  the  Federal  Government  to  introduce  petroleum  subsidy. The term subsidy is a grant of money, property or some other form of aid for which it expects no direct return or repayment.
The downstream sector of the Nigerian petroleum industry has not always been under government’s control and management. Before 1965, crude  oil  produced  in  the  country  was  solely  by  imports  in  a deregulated environment. The petroleum products marketing companies, (SHELL, BRITISH  PETROLEUM, ESSO, MOBIL, TEXACO and TOTAL)  bought  crude  oil and refined it at  the  Port  Harcourt refinery, paying a  refining  fee.  They then  collected  the  products and distributed  through  their outlets all over  the  country. Between  1965  and  1989  however,  four refineries  with  a  combined  capacity  of  445,000  barrels  per  day  were established in Port Harcourt,  Warri and Kaduna. These local refineries at the time were able  to  meet  local  consumption  while  their  surplus was  exported  mainly  to  neighbouring  countries in the West  African  sub-region.

Government’s involvement in the downstream petroleum sector came as  a  result  of  its  membership  of  OPEC and the gaps that appeared between the supply and demand for petroleum products in the country due to the rapid growth  in  the  Nigerian  economy  and  population.  OPEC’s  Resolution  Xvi Article  90  of  June  1968 enjoined all  members  to  acquire  participating interests in the operations of the oil companies according to a prescribed timetable that required each member to achieve 51 per cent participation by 1982. The Nigerian government set to achieve this with the establishment of the NIGERIAN NATIONAL OIL COMPANY (NNOC) in 1971.  By  1974 government  acquired  thirty-five  per  cent  investments  in  the  major production  of  oil  in  the  industry  and  by  1975;  its  level  of  investment  had risen to fifty-five per cent. Government got involved in the distribution of oil in 1977 when the NNOC and the Federal Ministry of Petroleum Resources merged to form the Nigerian  National  Petroleum  Corporation (NNPC) by Decree 33 of 1977. The  NNPC  is  charged  with  the responsibility  for  oil  exploration, production,  transportation,  research, refining and marketing of petroleum products and derivatives. Also,  the  government  in  its  involvement  in  the  downstream  sector promulgated Decrees that allowed the Nigerian Government ownership and management  of  refineries  in  the  country.  These  Decrees  include:  The Petroleum  Products  (Uniform  Prices)  Order  of  1973;  The  Petroleum Equalisation  Fund  (Bridging  Managing  Board)  Decree  of  1975  and  the Petroleum Amendment Orders of 1996 and 1998.
Government’s  involvement  in  the  management  and  ownership structure  of  the  refineries  and  downstream  infrastructures  gave  rise  to  a regulated regime that has been characterised by; an inadequate supply and distribution  of  petroleum  products;  the  monopoly  of  the  sector  by  the Government  agencies,  especially  the  NNPC;  funding  problems  for  NNPC leading to irregular maintenance of refining and distribution facilities; acute products  scarcity  which  often  lead  to  long  queues  at  the  fuel  stations; refining  capacity  under-  utilization;  smuggling  of  petroleum  products; adulteration  of  products  and  fire  hazards;  social  and  political  unrest  (the Niger  Delta  situation);  rampant  pipeline  ruptures  and  vandalization; divestment of marketers; heavy importation and subsidization of petroleum products by government; untold hardship to the masses and poor economic growth.
The  administration  of  PRESIDENT  OLUSEGUN  OBASANJO seeing the need to rejuvenate the nation’s economy and most importantly its moribund downstream sector, introduced a number of reforms including the  deregulation  of  the  downstream  oil  sector.  The  focus  of  the government’s  deregulation  policy  can  be  summarized  as  follows:  to maintain  self-sufficiency  in  refining;  to  ensure  regular  and  uninterrupted domestic  supply  of  all  petroleum  products  at  reasonable  prices  and  to establish infrastructures for the production of refined product for exports.
In  understanding  deregulation,  it  is  important  to  look  at  other  terms which  may  seem  similar  to  it  but  different  meaning.  These terms are; privatization, commercialization and liberalization. Privatization is “the relinquishment of part or all  the  equity  and  other  interests  held  by  the  Federal  Government  or  its agency  in  enterprises  whether  wholly  or  partly  owned  by  the  Federal Government…”[3] Privatization  is also  “the  conversion  of businesses  from  government  ownership  to  private  property.  This  can involve  the  denationalisation  of  industry  as  well  as  allowing  the  private sector to provide what had been considered government services.”[4]
From these, it is understood that privatization is simply the conversion from public to private sector ownership. The statutory definition does not suggest that a privatized enterprise will be registered as a private limited  liability  company;  indeed,  it  will  most  probably  be  a  ‘Public Company’. Privatization is different from deregulation in that the latter has to  do  with  the  reduction  of  government’s  involvement  and  the  removal  of regulatory  controls  in  the  economy  or  a  sector  in  particular,  whilst  the former has to do with the sell in part or whole of an industry or business so that  it  is  no  longer  owned by  the  government.  Deregulation  may  take the form  of  abolition  of  regulatory  controls,  reducing  administration, decentralisation  of regulatory  rule  making,  and  making  less interventionist laws. A deregulated sector may consist of privatized business in the sector but a privatized industry may not mean a deregulated industry.
The Public Enterprises (Privatization and  Commercialization) Act N0  28  of  1999 defines  Commercialization  as  “…  the  re  organization  of enterprises  wholly  or  partly  owned  by  the  Federal  Government  in  which such  commercialized  enterprises  shall  operate  as  profit-  making commercial  ventures  and  without  subvention  from  the  Federal Government…”.  This directly portrays the intention of government. While  government  may  retain  a  few  shares  in  them,  it  is  not  to  be  their source of funds in times of need. Commercialized companies must swim or sink on their own merits.
Liberalization as concerns the downstream sector of the oil industry is the  opening  up  of  the  sector  to  competition  among  players  in  the industry.  It  means  ensuring  that  every  aspect  of  production,  refining, distribution  and  dispensing  of  petroleum  products  is  self -  financing. Liberalization  also  means  giving  every  player  the  opportunity  to  refine  or import petroleum products for use in the country in so far as the products so refined  or  imported  meet  the  quality  specification.  It  involves  lifting  all competitive pricing barriers to entry. It is similar to deregulation with little or no difference between the two. In fact reality, a liberalized economy is very much a deregulated economy.
With the enormity of the country’s wealth in both crude oil and gas reserves,  Nigerian  citizens  still continue  to  wallow  in  poverty and  perennial scarcity  of  petroleum  products  occasioned  by  arbitrary  price  increases  by  over  ambitious petroleum marketers. These situations have persisted in the country over the years in spite of measures adopted by successive governments to cushion the effects by way of subsidy. Subsidy regime dates  back to 1973 after the civil war. It was a short term measure to cushion the effects of the high cost of imported petroleum products on the people by the Federal Military Government led by General  Gowon at the time. The Federal Government at the time operated fuel subsidy to reduce the effect of actual market prices of the products on the people as the landing cost was a huge burden, hence the need to make the products not only available but affordable. The intention of the operation of the subsidy regime fared well between 1973 and 1983. In 1986, the Federal Military Government of Ibrahim Babangida increased pump price of petrol from 20k to 39.5k, about 97.5% increase at the time. Nigerians experienced high cost of petroleum products during the Babangida administration as much as five times. The last of the pump price during his regime stood  at  70k  from  60k  before  he  stepped  aside  in  1993.[5] Successive regimes after the Babangida administration severally increased the pump price of petrol amidst mass protests. Subsidy payments by governments became worsened with the prices astronomically rising to N20 before the final exit of the last military administration on May 29, 1999. The emergence of civilian rule in 1999 did not however ameliorate the problem of fuel subsidy either. Under Obasanjo administration in 2000, the  pump price  was moved from N20 to N30, a clear upward of 50%. This was a clear departure from the original intention of those who founded the subsidy as it was gradually subdued and exited with occasional price increases.
The huge amount paid by the Federal Government on fuel subsidy  annually  neccesitated  the  introduction  of  the deregulation  policy  into  the  petroleum  sector.  This is because Fuel subsidy price could have been expended on infrastructural development to enhance the living standard of the people. In 2008,  the then  Minister  of  Petroleum,  Odein  Ajumogobia  stated  that government's  subsidy  on  petroleum  products  was NGN 1.5 trillion or USD9.68 billion annually. By this the deregulation policy of the Nigerian petroleum sector by the Federal Government is likely to bring about development of infrastructure and job creation. However, there are obstacles like corruption, high cost of governance and crisis of confidence about government policies that prevents the people from supporting the deregulation policy.

The history of the downstream sector, is the history of scarcity and arbitrary price increases of petrol products, subsidy payments and the removal of subsidy by successive governments.  The price of fuel has continued to rise from 1986 until the emergence of Yar’Adua administration in May 2007, when it subsidized the pump price to N65 per litre [6].  The  price  later  was  moved  to  N87  under  Jonathan administration which ended on May 29, 2015. The administration of Jonathan witnessed huge subsidy payments that took the bulk of the country’s annual budget. In  2011  alone,  Nigeria’s  fuel  subsidy  cost  the country an estimated  $8 billion  and the price tag for 2012 was expected to be even greater.[7]
NEITI’s  audit  report aptly restates  the narrative when  it said in very clear terms that:
The value of the subsidies  has gone from $1 billion in the 1980s to prohibitive $6 billion. Available  data  show  that  the  Federal  Government  spends  about  N1.4 trillion,  about  30  per  cent  of  its  total  yearly  expenditure  yearly  on  fuel  subsidy.

The government spent a whooping N4.5 trillion on fuel subsidy claims between 2006 and 2012. The Nigerian Senate in late 2015 approved N521 billion out of N575 billion supplementary budget sent to it by the Buhari administration to settle backlog of fuel subsidy  claims even at a time the pump price  of  PMS was sold at N180. When viewed against the backdrop of fallen prices of crude oil in the international market, Nigeria is at a loss of revenue as we depend solely on crude oil for survival in the face of ailing infrastructure and human capital. It is argued that the subsidy regime of government has been engrossed in corrupt practices.

Successive  governments  have  always  advanced  justification  to  deregulate  the  downstream sector and consequently  remove subsidy on petrol as savings made could be channelled into critical infrastructure in the country. The moves by successive governments to remove subsidy as part of deliberate efforts  to deregulate the sector have always not only been criticised butresisted by the Nigerian people through the civil society organisations and labour unions on the strengths of massive corruption in the subsidy regime and the fact that governments have not been and will not be sincere in living up to their promises  of channelling savings made to critical infrastructure  as  being  canvassed.  In  other  words,  successive  governments  in  Nigeria  since 1999 have faced the challenge of whether or not to adopt deregulation policy in the downstream sector of the petroleum industry. In fact, the decision of whether or not to adopt deregulation policy as a panacea for remedying the perennial fuel scarcity and arbitrary price increases in petroleum products has been an albatross around successive governments in Nigeria, especially when  viewed  against  the  backdrop  of  huge  mind-boggling  annual  subsidy  payments  to fraudulent oil marketers.

It  is  on  this  background  that  this  article  attempts  to  interrogate  the  political  economy  of deregulation policy in the downstream sector of the petroleum industry in Nigeria with a critique of the politics and economics of the deregulation policy with a view to answering the questions of whether or not the deregulation policy would address the perennial scarcity of refined petroleum products, arbitrary pump price hikes  as well as  the  challenges and  prospects  of a fully  deregulated downstream sector of the petroleum industry in Nigeria.

The deregulation of the downstream petroleum sector in Nigeria has generated a high level of deliberation in the country. The policy was initiated by President Olusegun Obasanjo as part of the economic reform policies for the country, with the intention to diversify the economic base of the country, reduce the dominant nature of the oil sector in the economy and hopefully create a vibrant sector that can respond to the vigour of market forces. This  policy  is  encapsulated  in  the  NEEDS[8]  document, a  four year  development plan, that sought to achieve the Millennium Development Goal  in  Nigeria  by  2015.  NEEDS  was  adopted  with  the  view  of strengthening  government  institutions,  creating  additional  wealth  for  the nation  through  efficient  allocation  of  resources  and  reducing  poverty through  the  encouragement  of  private  initiatives,  accelerate  privatisation, liberalisation and public sector reforms.

The  deregulation  policy  has  been  implemented  into other sectors  of the  economy  like  the  aviation  industry,  communication  industry,  banking industry and also the media. The deregulation experience of these sectors would be viewed later in this study. Essentially  deregulation  does  not  mean the absence  of  regulation;  rather,  it  is  a  deliberate  and  informed  process  of removal  or  mitigation  of  regulations  which  are  anachronistic  and  tend  to foster inefficiency or competitive inequities. According  to  PRESIDENT  OLUSEGUN  OBASANJO  “deregulation means paying what it cost to produce fuel at the pump price so that the  N200  billion  that  is  being  used  to  subsidise  is  no  longer  used  to subsidise fuel. That money is available to do other things. An  Internationally  acclaimed  dictionary  ENCARTA  defined deregulation  as  the  dismantling  of  legal  and  governmental  restrictions  on the operation of certain businesses.
The deregulation of the downstream sector of the petroleum industry means freeing the sector of all government involvement, that the erstwhile control  exercised  by  the  government  will  cease  except  of  course  in  the areas  of  national  policy  articulation  and  policing  of  the  industry  to  ensure safety and security off life; property and the fair dealing among stakeholders in that sector of the economy. The philosophy supporting deregulation is the Laisser-Faire  doctrine (French  word  for  “let things  alone”).  This doctrine favours capitalist self interest, competition, and natural consumer preferences as forces leading to optimal prosperity and freedom. It arose in the eighteenth (18th) century as a  strong  liberal reaction  to trade taxation  and  nationalist  governmental control known as Mercantilism.
The most important and influential proponent of the doctrine was the 18th century British Economist, Adam Smith. He believed that  individual welfare was more important than national power. In his book The Wealth of Nations (1776),  he  advocated  a  policy  of  free  trade  so  that  the  “invisible hand”  of  competition  could  act  as  an  economic  regulation.  Smith’s advocacy of private enterprise as the best stimulus to equitable distribution of  wealth  gained  increasing  support  in  the  early  nineteenth  (19th)century partly due to  the wave of libertarian revolution that swept through Europe and  the  U.S.A.  His theories  were  further  developed  by  the British Economists such as David Ricardo and John Stuart Mill. Similarly, OLISA AGBAKOBA  a  Senior  Advocate  of  Nigeria comments that  “…regulation…refers  to  laws and rules that seek to impose outcomes that would not be reached by the operation of free market forces and private legal rights.”

STRUCTURE OF THE DOWNSTREAM SECTOR

Nigeria  imports  and  exports  some  petroleum  products  because  the product  composition  of  the  refinery  output  does  not  exactly  match  the composition of domestic demand. Consumption data show that the middle distillates, like petrol and diesel, dominate the demand structure; Nigeria is often a net importer of these products.

Due to low level of capacity utilization of the refineries, domestic production levels falls short of total  demand,  leading  to  shortages  of  products,  and  as  a  result,  to  high levels of petrol and diesel imports. The  import,  distribution,  and  storage  infrastructure  is  dominated  by the  Pipelines  and  Product  Marketing  Company  (PPMC)  which  is  a subsidiary  of  NNPC.  Most  of  the  infrastructure  investments  began  late  in the 1970s, spurred on by Nigeria’s growing oil production capacity and oil revenue after the oil price hikes in 1973 and 1979.

Nigeria  has  five  jetties  for  imports,  the  Apapa  and  the  Atlas  Cove terminals  near  Lagos,  Escravos  in  the  Western  Delta,  Okirika  near  Port Harcourt, and Calabar near the border with Cameroon. The two main import terminals  are  Atlas  Cove  and  Port  Harcourt  close  to  the  Port  Harcourt refinery. These are deep sea ports.

Nigeria has four refineries, two in Port Harcourt (Rivers State), one in Warri (Delta State), and one in Kaduna with a total nominal refining capacity of 440,000 barrels per day (bpd). The four refineries are:

• the  oldest  unit  in  Port  Harcourt  is  decrepit  and  not  producing although it has a nominal capacity of 60 bpd;
• a new refinery was commissioned in Port Harcourt in 1989 with a processing capacity of 145 bpd of crude oil;
• the Warri  refinery was  commissioned  in  1978  and  upgraded to  a capacity of 125 bpd in 1987;
• The Kaduna refinery was commissioned in 1980 and expanded to 110 bpd of processing capacity in 1986; crude oil to the refinery is delivered  through  a  700km  pipeline  from  Escravos  Terminal  in Delta State.
  

These refineries have never operated in their nominal capacities. In recent years, capacity utilization has been at 30-40 per cent. This performance gap is only partly explained  by  the  deterioration  of  equipment  of  the  old  Port  Harcourt refinery,  supply  disruptions  at  the  Kaduna  refinery  (vandelization  of pipeline),  and  social  unrest  in  the  area  around  the  Warri  refinery.  More importantly, however under the pricing regime prevailing before September 2003, there  was  a  clear  incentive  to export  rather than refine  crude oil  in order to finance NNPC’s losses in downstream petroleum distribution.

Apart  from  the  crude  oil  pipeline  that  feeds  the  Kaduna  refinery, Nigeria  is  criss-crossed  by  more  than  4000km  of  petroleum  product pipelines, which deliver products to strategic storage depots in the regions. About  twenty  pumping  and  booster  stations  keep  petroleum  products flowing  through  the  pipeline.  The  current  configuration  dates  back  to  the early 1990s, when the last phase of the Pipelines and Depot Project worth $600 million  was completed.  Despite this  investment,  many  pipelines and other pieces of equipment are run down. The functioning of  the system is further hampered by vandelization and theft.

Following the refining process, petroleum products are first deposited in  large  storage  depots  at  the  refineries.  From  there,  they  are  shipped through  the  pipelines  to  fifteen  storage  depots  strategically  located  in various  regions.  A  large  percentage  of  the  storage  depots  are  old  and leaking,  which  results  not  only  in  financial  losses,  but  also  in  significant groundwater pollution.

Transportation  of  products  between  strategic  storage  depots  and filling stations is provided by a fleet of road tankers owned primarily by the major  marketers.  Due  to  the  low  margins  that  have  prevailed  over  the recent  past,  the  retail  sector  has  suffered  from  insufficient  investment  in maintenance and new equipment.

THE DEREGULATION POLICY IN DOWNSTREAM SECTOR

The  Nigerian  petroleum  industry  consists  of  the  upstream  and  the downstream sectors. The upstream sector deals with discovery, exploration (onshore and offshore), extraction of oil and gas, treatment, transportation and delivery to export terminals/processing plants. The downstream sector, on  the  other  hand,  entails  refining  of  the  white  products,  conversion  to petrochemical  products,  transportation,  distribution  and  marketing  of  the finished products. These products are mainly Premium Motor Spirit  –petrol, Automotive Gas Oil  –  diesel, Dual Purpose Kerosene, Low and High Pour Fuel oil (LPFO/LHFO), Base oil, Liquefied Petroleum  Gas (LPG), Bitumen, Paraffin Wax and Sulphur. The downstream oil sector has not been without its many problems. These problems can never be over stated and they are; petroleum scarcity, mishandling of products, waste of productive man-hours due to queuing in fuel stations, hording of the product by marketers, cross-border smuggling, large-scale corruption in the distribution and marketing chain, lack of Turn Around  Maintenance,  mismanagement  of  funds,  poor  maintenance  and vandelization of facilities.

The  CHIEF  OLUSEGUN  OBASANJO  administration  in  the  bid  to completely stamp out these recurring problems on the 14thof August 2000 set  up  a  34-man  committee  comprising  of  various  interest  groups  in  the country  including  the  Nigerian  Labour  Congress  (NLC).  The  committee known as the  Special Committee on the Review of Petroleum Products Supply  and  Distribution  (SCRPPSD),  deliberated  on  the  problems  for more  than  three  months  and  recommended  the  total  liberalization  of  the sector as the only viable solution to the  myriads of problems plaguing the downstream  petroleum  sector.  By  this,  the  committee  meant  that  the various  aspects  of  the  downstream  sector  of  the  oil  industry  should  be opened  up  to  participation  by  individuals  and  corporate  bodies  who  have the wherewithal and the technical experience to invest in the sector.
Other  recommendations  of  the  committee  includes:  that  the importation of petroleum products should be deregulated to allow for other participants  to  join  apart  from  the  NNPC;  that  Nigeria  must  maintain  self-sufficiency  in  refining;  that  efforts  must  be  made  to  ensure  uninterrupted domestic supply of products at reasonable prices; establishing facilities and infrastructure for  the  production  of  refined products  targeted  at the  export-market;  support  local  production  of  petro  chemicals;  provide  gainful employment  which  could  facilitate  acquisition  of  technical  know-how  in refining  and  distribution  business  by  Nigerians;  privatization  of government refineries and the provision of incentives for the establishment of new refineries; the setting up of a Petroleum Products Pricing Regulatory Committee (PPPRC) to superintend the phased proposal and lastly, a three phased approach to the deregulation of the downstream oil sector.

Following the submission of the committee’s report by October 2000, the Federal Government released its white paper on the recommendations on January 2001. In the white paper, government approved a phased implementation of the liberalization process. It also approved the setting up of  the  23-member  Petroleum  Products  Pricing  Regulatory  Committee(PPPRC)  on  the  22nd of  March  2001,  as  a  fore  runner  to  the  Petroleum Products  Pricing  Regulatory  Agency  (PPPRA),  which  was  subsequently established  by  an  Act  of  the  National  Assembly  on  27th May  2003.  Former President Olusegun  Obasanjo inaugurated the Board of the Agency on 19th June 2003.

January  1  2002  saw  the  commencement  of  the  deregulation  of  the downstream sector of the oil industry. Ceiling prices for PMS, AGO, DPK at N26, N26 and N24 respectively became operational. Also the consumption tax of N3.00 was abolished, while a N1.50 import duty was introduced on all imported products. Government also raised the prices of crude to the NNPC. The N1.50 import duty on petroleum products was later removed to encourage marketers to import products. The removal of the tax signified  that  imported  products  attracted  zero  duty. Finally, in September 29 2003, Government commenced total liberalization of the downstream sector of the oil industry.

The  goals  and  objectives  of  the  deregulation  of  the  downstream  oil industry  include;  decontrol  of  petroleum  prices,  removal  of  restrictions  on the  establishment  and  operation  of  petroleum  infrastructure,  importation and exportation of crude oil and petroleum products, allowing market forces to prevail, free entry and exit into the products market. The objectives aim to ensure: the move to a market based pricing regime and eliminating regulatory distortions in order to encourage efficient allocation  of  resources  and  phase  out  uneconomic  fuel  subsidies;  open downstream  markets  in  a  manner  that  encourages  private  sector investment  and  establish  a  level  playing  field  for  competition  among industry participants for market and profits; restructure NNPC in a manner that the privatized NNPC subsidiaries will be able to compete in the  market and  attract  investment  opportunities  to  the  downstream;  refocus  and strengthen  sector  regulation  in  order  to  protect  the  public  interest; encourage opening up of PPMC facilities to third parties on a user-fee nondiscriminatory  basis;  and  lastly,  limit  government’s  involvement  to  policy formulation and fiscal matters leaving commercial and investment activities to the downstream operators and regulation to an independent regulator.

The well implementation of the deregulation policy was expected to:

• Lead to a diversified and sectional growth of the economy through the optimal  process  of  resource  allocation  and utilization.  Scarcity  of  products  will  be  eliminated  and  in  the long  run,  bring  low  pricing.  Marketers will attract buyers by price reduction and after purchase incentives.
• turn the present sellers’ market to become buyers’ market and customers will be king.
• create jobs for skilled, semi-skilled and unskilled workers.
• help the NNPC to explore the international market by selling off excess products and import the right raw materials best for its operations.
• channel government savings from deregulation to other  productive  ventures  and  social  amenities (education, shelter,  employment,  transportation,  electricity  and  enhanced salaries.) that  would make  life  better  for  the  people.
• ensure the Building of small and medium refineries  by  private  sector  actors  which  will  inevitably  bring down the prices of petroleum products.
• Discourage smuggling across the border which presently benefits other countries.
• transfer technology and technological expertise.  This  is  because  much  of  the  industry  is  technical, thus,  it  will  be  virtually  impossible  for  the  investors  to  invest without  bringing  in  the  requisite  technology.  The  technological transfer  will  have  a  multiplier  effect  on  other  sectors  of  the economy.
• localize the industry and  upswing economic  activities. It  will  also  promote  labour  mobility,  raise professionalism and enhance the technological know-how of the Nigerian  engineers.  It  will  further  lead  to  the  re-engineering  of the oil and gas sector.
  

LEGAL AND REGULATORY FRAMEWORK

A pre-requisite for transition from a regulated to deregulated economy is an appropriate legal and regulatory framework. A deregulated economy does not imply the absence of regulation. The regulatory  and  supervisory  bodies  exist  to  oversee various  aspects  of  the  implementation  of  the  policy  in  the  downstream sector,  pricing,  supply  and  distribution,  adherence  to  standards,  health safety  and  environment,  consumer  protection,  planning  and  research  and other  areas  that  require  monitoring. However,  it  is  the  business environment  that  dictates  and  determines  the  nature  and  extent  of involvement of regulator or supervisory bodies.

The regulatory framework established for the deregulation of the downstream  oil  sector  is  the  Petroleum  Products Pricing  Agency  (Establishment)  Act,  2003,  primarily  to  determine  the pricing  policy  of  petroleum  products  and  regulate  their  supply  and distribution. The functions of the Agency are to:

• determine the pricing policy of petroleum products;
• regulate the supply and distribution of petroleum products;
• moderate volatility  in  petroleum  products  prices,  while ensuring reasonable returns to operators;
• maintain constant surveillance over all key indices relevant to pricing  policy  and  periodically  approve  benchmark  prices  for all products;
• establish an information and data bank through liaison with all relevant  agencies  to  facilitate  the  making  of  informal  and realistic decisions and pricing polices;
• identify macro-economic  factors  with  relationship  to  prices  of petroleum products and advise Government on all appropriate strategies for dealing with them;
• oversee the implementation of the  white paper on the Report of  the  Special  Committee  on  the  Review of  Petroleum Products  Supply  and  Distribution  as  they  relate  to  its functions,  taking  cognisance  of  the  phasing  of  the  specific proposals;
• establish parameters and codes of conduct for all  operators in the downstream sector of the petroleum industry;
• Establish firm  linkages  with  key  segments  of the  society  and ensure  that  its  key  decisions  enjoy  the  widest  possible understanding and support.
  

In analysing the legal framework that has been  put in place to effect the  deregulation  policy  in  the  downstream  petroleum  sector, it is sad that apart from the Act establishing the PPPRA, which is the regulatory agency, there is no solid legal framework.

Nigeria is not the only country to deregulate its downstream oil sector. Other countries have  done so.  The experiences of these countries are analysed in this sub-section with the view of drawing from their experience. These countries include Ghana, which is not an oil producing country and so it has to import its petroleum products. The NPTB is in charge of importation, refining, distribution and sale of all petroleum products. The cost of deregulation is the potential of increases from transport to food, to cement, to rent, and so on. The Ghanaian government has already initiated measures to mitigate the effects of the price increases. South  Africa also,  with four functioning  (stress  on the  “functioning”) refineries and a fifth Gas to Liquid(GTL) Refinery has a total refining capacity of approximately 650,000 bpd, sufficient to meet current demand. The country has the second largest refining capacity in Africa after Egypt. The intention of the Government is to introduce a deregulated oil industry as pre-determined milestones are achieved.  Knowing  that  the  transition  process may  be  difficult  and  that  there  may  be  some  negative  effects  on employment and small businesses in the short and medium term. In view  of  these,  the  government  proposes  a  phased  and  managed reform  process  which  will  allow  for  proper  management  and monitoring. It will allow time for preparation and adjustment by the respective industry participants and role-players.  Currently the country is into export of petroleum products to Southern Africa and the Indian/ Atlantic Basin Markets. The deregulation is designed to be in three sequential phases. The  first  phase  will  allow  for  interim  adjustments  to  fuel  price mechanisms and settling of over/under recovery account with the oil industry.  In  this  phase,  mechanisms  will  be  put  into  place  to ameliorate  any  negative  impact on  employment  opportunities  as  a result of restructuring process. The key milestones to be achieved in this  phase  include:  the  sustainable  presence,  ownership  or  control by  historically  disadvantaged  South  Africans  of  approximately  a quarter  of  all  facets  of  the  liquid  fuel  industry,  or  plans  to  achieve this;  the  introduction  of  necessary  legislation  to  give  effect  to  the cornerstones  of  government  policy  including  the  protection  of  “full service” and equitable participation of small business in the industry; the introduction of any necessary institution and regulatory capacity required to enable government to adequately monitor possible post deregulation distortions and to enable it act against such distortions; suitable arrangements to address any labour related consequences of the deregulation. The second phase is characterized by allowing market forces set prices.  Retail price regulation, import control and government support for the service station rationalization plan will be simultaneously removed. The third phase will be the post deregulation transition phase. This  will  be  characterized  by  government  vigilance  and  monitoring for  possible  problems  arising  from  the  introduction  of  deregulation and  corrective  actions  to  address  them.  In  the  event  of  uneven competition  resulting  in  price  distortions,  for  example  rural  –urban cross-subsidies, fiscal measures or price capping may be employed too  counter  balance such  distortions. Government  will  monitor  and evaluate  possible  problems  arising  from  the  introduction  of deregulation  and  will  be  taking  corrective  actions  on  the  different phases as they unfold.

In Philippines, deregulation of the Philippine petroleum downstream industry was achieved in 1998.  It was done in two phases namely; partial and full deregulation.  In the partial deregulation phase, oil importation was liberalized and the automatic pricing mechanism was implemented. While in the full deregulation phase, controls on oil price setting were lifted. Mali also had her share in the deregulation subject at a point in her history.

Post-Deregulation Era

The importance of the oil industry and the downstream sector in particular to Nigerians cannot be over emphasised. For a sector that contributes over ninety per cent of the nation’s earnings, it is easy to understand that developments in that sector will have ripple effects on the whole economy and will impact significantly on the lives of the citizens. The deregulation policy is a germane topic in   the country birthing many events since the implementation of the  policy. These  events  include  the establishment  of  the  regulatory  body  PPPRA and the Petroleum Support  Fund,  the  selling  of  two  refineries  and  Government’s shares in African Petroleum, the incessant rising of fuel price followed by the  presence  of  long  fuel  queues,  strikes  by  organised labour and the increase in the prices of transportation, housing, food, necessaries of life. These events are effects of the deregulation policy.

The effects of the policy include:

• Entrance  of  Private  Operators:  Prior  to  the  deregulation  of  the downstream oil industry, the government through the NNPC played a leading role in the oil industry. The Nigerian National Petroleum Corporation had monopoly of petroleum product supply; it was the only wholesale supplier of petroleum product, both through refining and imports.  Following  the  announcement  of  the  deregulation  of the  downstream  petroleum  sector,  private  investors/  operators embarked  on  massive  investment  in  the  sector  culminating  in building and commissioning of jetties, depots and service stations with  new  pumps  development,  expansion  of  trucking  fleet, modernisation  of  Health  and  Safety  Environment  equipment. Apapa  jetty  which  was  hitherto  exclusively  used  by  NNPC  was opened for use by other players on a user fee basis. Independent  Marketers  together  with  their  foreign  partners, Pure  bond  of  London  have  floated  the  Nigerian  Independent Company (NIPCO) to build a 3.65 billion-naira  depot in Lagos. The depot has a 40 million litres capacity for PMS, AGO and DPK. The Depot and Petroleum Products Marketers Association are not left out either (DAPPMA). DAPPMA has made substantial investment in the area of storage facilities and products haulage. In  the  construction  of  private  refineries,  eighteen  companies have been awarded licence to build refineries. Badagry Petroleum Refinery  Limited  is  one of the  private  operators  awarded to  build petroleum  refineries.  The  company  partner  with  TRICAN Corporation United States of American to carry out the project. Mr. Babajide  Soyode  the  Technical  Adviser  Badagry  Refinery  in  an interview  on  a  daily  newspaper  stated  that  the  joint  venture agreement  became  expedient  to  adequately  implement  the deregulation  policy.  Under  the  agreement,  TRICAN  Corporation becomes the majority equity holder of 58%, while BPPLY holds the balance of 42%. Furthermore,  NNPC’s  monopoly  of  product  supply  is  being broken  through  direct  importation,  storage  and  distribution  of petroleum product by private investors.
• Privatization of Government’s Shares and Infrastructure: The  past  administration  in  its  implementation  of  the deregulation  policy  sold  NNPC’s  shares  in  AFRICAN PETROLEUM.  It  also  sold  both  the  Kaduna  and  Port  Harcourt refineries. One of the effects of the deregulation policy is the establishment of  the  PPPRA.  The  PPPRA,  in  a  nutshell,  is  the  regulatory  body established  to  superintend  the  various  phases  of  the  proposal embodied in the report submitted by the SCRPPSD, especially the deregulation  and  liberalization  of  the  downstream  sector  of  the petroleum  industry;  to  determine  the  pricing  policy  of  petroleum products and regulate their supply and distribution. The  PETROLEUM  SUPPORT  FUND  came  about  as  a modulator mechanism that was recommended by the “Independent Coordinating  Committee  On  Measures  for  Cushioning  the  Effects of  the  Increase  in  The  Prices  of  Petroleum  Products”.  The Committee  recommended  the  establishment  of  a  modulator mechanism to stabilize domestic prices of petroleum products and mitigate the impact of fluctuations in crude prices on the domestic products  market.  To  that  effect,  the  Government  established  the Petroleum Support Fund. The PSF is a pool of funds budgeted for by  Government  to  stabilize  the  domestic  prices  of  petroleum products  against  the  volatility  in  international  crude  and  products prices.
  

Fuel Subsidy Removal

The  major  issue  in  the  deregulation  of  the downstream  sector  is  the  price.  The  government,  in  an  effort  at solving  the  problem  of  pricing  of  petroleum  products  employed several  options  and  the  issue  of  subsidy  became  a  major  one. Subsidy  remains  today  the  most  unpopular  weapon  government employs anytime it decides on effecting an increase in the price of oil.  It  remains  the  only  word  government  resorts  to  when questioned  on  the  rationale  behind  any  such  increase  and  the frequency of the excuse of the need to remove subsidy has made the word unattractive to Nigerians. Former President,  Chief  Olusegun  Obasanjo, told Nigerians that the removal of  subsidy on petrol was the key to the policy of deregulation, but today it has proved to be  its  albatross  and  that  is  why  it  is  difficult  to  get  people  into refining  business  in  Nigeria.  That  has  also  accounted  for  why  17 (seventeen) companies licensed to  build and operate refineries in the  country  five  years  ago  have  not  advanced  much  as  it  was envisaged in the beginning. The licenses stated that they could not understand  why  the  government  should  sell  Nigerian  crude  to Nigerian companies operating in the  country at international price, more so when it knows that it will be morally wrong for government to ask Nigerians to pay international price for the refined petroleum products  when  they  know  that  the  crude  these  companies  are using in making the fuel available is gotten from their backyard.

The  government’s  method  of  implementing  the  deregulation policy  of  the  downstream  sector  led to  periodic  and constant increase in the price of petroleum products for the local market and exploitive tendencies of the oil marketers. September  2005  in  Nigeria  witnessed  an unprecedented  wave  of  protests  in   form  of  mass demonstrations and rallies that were held in at least ten major state capitals across the  country. The demonstrators rejected all forms of increment in prices of petroleum products.  The increment was over 30 per cent.  This was the tenth increase in the price of petroleum products since the inception of the administration of General Olusegun Obasanjo. With two days to the end of his eight-year rule as elected president of Nigeria, General Olusegun Obasanjo, on Sunday, May 27, 2007, effected another increase in the prices of petroleum products with petrol from N6500 to N75.00 and kerosene from N54.00 to N64.00. The price of  diesel  which  was  said  to  have  been  deregulated  was  not affected. In eight years, Obasanjo upped the price of petrol eight times  –  from  N20.00  to  N75  –  representing  a  275  per  cent increase.  For diesel and kerosene,  the  margins  are  even  wider. The devastating effects of previous increases had in no way been ameliorated when another price hike was imposed. The  price  hike  led  to  another  strike  by  Organised  Labour  for price  reversal.  This made President Umar Yar’Adua to reduce the price to N70.00. The multiplier effect of these increments has been enormous on the Nigerian populace. Directly, it has meant sharp increase in the cost of household energy procurement, since most households rely on  kerosene  and  other  petroleum  products  for  domestic  fuel  to cook food and so on. The recurrent increase has meant that more of the already inadequate income of workers is now going towards household energy procurement. For those who cannot cope, it has meant going back to wholesale firewood cooking with its numerous health and environment hazards. For  industries,  it led  to  an  enormous increase in the cost of industrial energy procurement and hence a rise  in  the  cost  of  production.  This  is  more  the  case  since  the electricity  supply  remains  predictably  epileptic  and  most  of  the factories  and  other  industries  have  no  choice  but  rely  on  diesel generators to propel their productions. This added cost has led to a major  crisis  on  the  industrial  plane  with  the  untoward  effect  of workforce  load  shedding  (mass  retrenchment)  and  in  some circumstances,  leading  to  the  outright  closure  of  factories  and other  workplaces  that  depend  heavily  on  diesel  running generators. In the same ration, leading to the escalation of violent crimes, fraud, prostitution, the list is inexhaustible.

The  transport  sector  is  obviously  the  worst  hit  among  the sectors  under  review.  Increment in prices of petroleum products has led to a direct increase in the cost of transportation of commuters and goods.  The increase in the price of petroleum products comes with the attendant increase in the price of everything; from the price of rent to the price of the supposed not so important things in the market, for example toiletries.

Deregulation as a policy has wonderful benefits if well implemented. As has been witnessed,  the  deregulation  policy in Nigeria did  not  scratch  the  surface  in  solving  the  problem  it  was introduced  to  solve.  The  following  in  this  writer’s  view  are  what  the government  should  have  implemented,  the  alternative  remedy  to  the deregulation policy.

• Developing the agricultural sector: long before the discovery of  crude  oil  in  Nigeria  and  by  the  time  Nigeria  became politically independent, agriculture was the dominant  sector of the economy, contributing about 70 per cent of the gross domestic  product  (GDP),  employing  and  accounting  for about  90  per  cent  of  foreign  earning  and  Federal Government  revenue.  After  the  discovery  of  oil  in commercial  quantities  in1956,  crude  oil  became  the dominant resource in mid 1970’s. The oil boom of the 1970’s led  Nigeria  to  neglect  its  strong  agricultural  and  light manufacturing  base  in  favour  of  an  unhealthy  dependence on  crude  oil.  The  largely  backward  agricultural  sector  has been  unable  to  keep  up  with  rapid  population  growth,  and Nigeria  once  a  large  exporter  of  food,  must  now  import food. The Nigerian government needed to have developed the agricultural sector of the  country.  In so doing  it  would have reduced the level of unemployment in the country and shifted the  country’s  dependence  from  crude  oil.  In  this  way,  the usual  reliance  on  petroleum  will  no  longer  be  in  existence. Secondly,  the  additional  revenue  the  government  gave  as reason  for  the  deregulation  of  the  price  of  fuel-  that  is  the removal  of  subsidy-  would  have  been  gotten  from  the improved agricultural sector. One of the factors that make a country to have a strong economic base is the fact that the country produces enough food to feed its population. America is a strong country due to the fact that it has a strong agricultural sector. It produces more than 90 per cent of the food its population feeds on and has more than enough to export.

• Seeking  other  energy  avenues:  Jimmy  Carter,  a  one-time President of the United States  of  America, when the country was going through fuel shortages, long fuel queues, increase in  the  price  of  gasoline,  stated  that  one  of  the  ways  the country was going to get out of that situation, was to commit funds  and  resources  to  the  development  of  alternative sources  of  fuel.  In  this  way,  the  country’s  dependence  on petroleum  will  be  reduced. In  keeping  to  this,  the  George Bush  administration  presently,  proposed  a  budget  to increase funding for research into clean coal, ethanol -which is a bio fuel, and renewable energy. President George Bush had  announced  the  Advanced  Energy  Initiative  which involves developing alternative fuels and clean energy in an effort  to  replace  more  than  75  per  cent  of  the  country’s  oil imports from the  Middle  East  by  2025.  The  plan  includes  a new solar energy initiative, wind energy research, increase in funding  to  speed  up  development  of  cars  that  run  on hydrogen and electricity. Dependence on petroleum is no longer encouraged.  The  most  appropriate  thing  is  to  seek and develop  alternatives  to  crude  oil.  This will reduce the country’s reliance on petroleum as a source of energy. The problem  of  fuel  scarcity  will  no  longer  exist  because; petroleum  products  will  no  longer  take  centre  stage  as energy  provider  for  the  populace.  Also  diversification  from the  oil  and  gas  sector  would  put  an  end  to  the  cases  of restiveness  and  other  social  vices  among  the  youth  in  the Niger Delta.

• Development  of  a  working  Transport  System:  one  of  the things  the  government  should  have  done  rather  than  the deregulation  policy  is  the  development  of  the  Nigerian transport system.  This is one of the ways of reducing the consumption of fuel by individuals. If the country could boast of a good railway and effective bus system, the need to own cars would have been dispensed with by most people. The need to fuel more cars would then, not arise.  More people will make use of both the railway and bus system to get to their destinations.  In developed countries, these are the measures that  have  been taken to  reduce  the consumption of fuel by the populace. People who own cars usually, would, park them in the car parks so as to benefit from the railway and bus system. This helps them to save more and reduce their consumption of petrol.
• Building More Refineries: If we ask of  what  use  is  it  to  build  more  refineries  when  the  present ones are not  being  utilized, the population of the country has increased from what it used to be after the last refinery was built in 1989. The  government  needed  to  have  rejuvenated  the existing  refineries  and  provided  new  ones.  It  can  rightly  be argued that the building of refineries is one of the benefits of the deregulation policy, but as is clearly seen, licences have been given for the building of refineries by private operators but till date non has been built and so the country continues to  rely  heavily  on  the  importation  of  refined  petroleum products rather than producing her own. A lasting solution to the  problems  of  supply  of  petroleum  products  lies  in  the repairs of the present refineries, building of more refineries to at  least  double  the  combined  capacity  of  the  present  four refineries.

Government exists to formulate and implement public policies to enhance the living standard of the people; and deregulation of any aspect of the economy is one of such public policies that government can adopt. Public policy is the formal or stated decisions of government bodies or a plan of action adopted by government or its agents.  It involves the use of state coercion agencies to enforce and  ensure compliance.

Deregulation of  any  aspect  of  a  nation's economy on the other hand could take the form of privatisation or divestiture  of an  aspect  of the  economy  from  government  to private investors. The purpose of deregulation is to ensure competitive economic system devoid of monopoly and allow price mechanism of demand and supply's principle of economy to prevail.” Deregulation is also a tool for reducing government intervention in economic activities and providing relevant structure of incentives that would put the economy on the path of recovery and growth. Other scholars see deregulation as a process where  government reduces its role and  allows  the  natural  market  forces  of demand  and  supply  to become fully operational. Its effect according to them is freedom in the market place and the best route to an efficient and growing economy.  As such, deregulation could be said to be government withdrawal of control from the working of an aspect of the economy and leaving same in the hands of the private sector operators for more efficient use of resources and to bring about development in the society. The  main  objectives  of deregulation  of any  aspect  o f a  nation's economy  include:  introduction  of  market  economy,  increasing democracy  and  guaranteeing  political  freedom,  and  increasing government revenue.

In importance, the deregulation of an aspect of the economy o f a country returns that when market  forces  are  allowed  to  play  out,  and  the  private businesses  are  given  pre-eminence  in  the  economy,  then  the economy would  be  rejuvenated  and  sustainable  development would  consequently  ensue.”  Proper management of revenue generated from the deregulation of an aspect of the economy could go a long way in the provision of social amenities, infrastructural development  and  job  creation  for  the  populace.  When this happens, it can be concluded that development has materialised in that society.

The concept of development itself has generated different meanings amongst scholars.  It  is  a multidimensional  process  involving  the  re-organisation and re­orientation of the  entire  economic  and  social  system,  which involves the improvement of income and output, radical changes in institutional, social and administrative structures as well as in popular attitudes, customs and beliefs. It is a continuous process of positive change in the quality of life o f a person or group of persons by the reason of access to better living condition.  They  went  further  to  identify indicators  of development  as:  ability to  feed,  clothe and shelter oneself resulting from more income in one's occupation or means of livelihood; ability to live a much longer life as  a result of the provision of  health  and  medical  facilities,  and  prevention  o f diseases through  better  sanitation;  ability  to  read,  write  and understand  forces  surrounding  one  through  the  provision  of formal and  informal  education;  and  ability  to  participate meaningfully  in  political  activities  and  in  the  policy  making process at the local and governmental levels.

Development is a progressive realization of the fullest possible and balanced flourishing of both human and natural resources - the latter in view of the former. It  is also  a  continuous  improvement  in  the capacity of the individual and society to control and  manipulate the forces of nature for the enhancement of the living standard of the  people  in  a  society.  On  the  other hand, development can be viewed in terms of improving the living conditions of people  amongst  the  world's  poorest  nations because it entails a higher quality of life, higher income, better education, higher standards of health and nutrition, less poverty in society, a cleaner environment, more equal opportunities, greater individual  freedom  and  richer  cultural  life  amongst  citizens  of poorer nations. Development also refers to advancement through progressive changes in economic, social, cultural, technological and political conditions of a society leading to an improvement in the welfare of citizens.  Scholars have argued that no society can claim to be developed if there is a high level of poverty, insecurity, unemployment, illiteracy, malnutrition, child mortality, political instability, deplorable state  of infrastructure and inequality in income distribution.

For development to have taken place in a society; there must be an enhancement of the quality of life of citizens: meeting the basic needs of food, shelter, good health, good education and a general sense of well­being amongst the people.  Development therefore is a process that entails growth both in infrastructure and in the lives of the people.  Development can be stagnated where there is lack of long-term perspective on the part of leadership in a country. From the foregoing, development is  associated with better quality of living  in  terms  of  the  availability  and  access  to  the  basic necessities of life  such  as  clean  water,  food,  clothing, shelter, good  education,  health  and  the  ability  to  participate  in  the decision  making  process of government  in  a  society.  These indicators of development as pointed out above require funds on the part of the government. Hence all things being equal the more funds available to government, the more likely the provision of these amenities.

DEREGULATION OF THE PETROLEUM SECTOR AND DEVELOPMENT IN NIGERIA
Nigeria currently has five refineries located in Port-Harcourt, Warri and Kaduna, of which four plants are government owned and managed by the state owned company  - Nigerian National Petroleum Corporation (NNPC), while the  fifth plant is owned and operated by the Niger Delta Petroleum Resources (NDPR). The total  output  production  of petroleum  products  from  these  five refineries  combined  barely  met  30  percent  needs  of domestic consumption.  These five refineries are  currently  working  at below 55 percent installed capacity due to mismanagement, lack of maintenance culture  and corrupt practices  on  the part of the operators. As a result, the Federal Government had to resort to fuel  importation to  meet domestic  needs.  This  development resulted in the emergence o f “rich oil Mafia” that controls the Nigerian petroleum sector and hoards petroleum products with a view to  increasing  the  pump  price  o f petrol  arbitrarily  without considering  the  interest  of  the  citizens. The dangers o f over reliance on oil and gas as major sources of revenue and resorting to  fuel  importation as a means  of meeting the  domestic needs of petroleum products in Nigeria are close. Unless Nigeria  faces  the reality  of diversifying its economy from reliance on oil as a major revenue earner and develop capacity in other areas like agriculture, mining and  solid  minerals;  the  future  may  remain  bleak. Our four state owned refineries are not operating at full capacities and we take delight in exporting our crude oil  and again import back as refined  products  at high  costs..

There were certain principles and assumptions associated with the deregulation policy of  the  Federal  Government  in  the petroleum  sector.  These are:  that the  Nigerian  government recognises the  inadequacies  of  the  existing  state-owned  oil companies and desires to maximise supply sources for the refined products  market  in  the  country;  that  local  and  private  investors would  be  willing  to  takeover  the  state-owned  facilities  in their current state  of  dilapidation  and  operate  them  efficiently  and profitably thereafter;  that government monopoly o f refining and distribution  from  the  state-owned  storage  depot  would  be completely unbundled and abolished; that private refineries would procure  crude  oil  at  competitive  rates  and  sell  their  refined products profitably and at international prices both in and outside Nigeria as  desired  by  the  operator;  that  private  investors  would have open access to state-owned facilities like petroleum reception jetties  at  Escravos,  Atlas  Cove,  Okrika,  Effurun  and  Calabar, including the storage tanks at Port-Harcourt, Warri and Kaduna for expediting  the  logistics  o f  improving  petroleum  products availability  in  Nigeria;  that  prospective  private  operators  must have the necessary financial and technical capacities and be liable to  applicable  environmental,  community  relations  obligations, safety,  quality  and  other  standards,  and  that  unnecessary impediments,  including  over-bearing  procedures  for  granting licences  to  prospective  private  refiners  and  other  potential investors in the downstream sector that need to be removed may remain, given the nature of the bureaucracy in Nigeria.

The PPPRA evolved to establish  an  information  and  data  bank by  liaising  with  relevant  agencies;  facilitate  informed decisions  on  pricing  policies;  moderate  volatility  in  petroleum products pricing, while ensuring reasonable returns to operators; oversee  the  implementation of  relevant  recommendations  and programmes of the Federal Government; establish parameters and codes of conduct for all operators; maintain constant surveillance over all petroleum products; identify macro-economic factors in relation  to  pricing  of  petroleum  products  and  advise  the government  on  appropriate  strategies  for  dealing  with  them; establish linkages with key segments of the Nigerian society and ensuring  that  their  expectation  enjoy  the  widest  possible understanding  and  support;  prevent  conspiracy  and  restrictive trade practices that are harmful to the sector; and play a mediating role for all stakeholders in the sector. One of the major criticisms leveled against the PPPRA from the inception  is  its  method  of  implementing  the  liberalisation (deregulation) policy o f the Federal Government, which has to do with periodic and  constant  increases in the pump price of petrol and  other  petroleum  products.  This  has  further  encouraged  the exploitation  of  Nigerians  by  oil  marketers  in  the  country.

Consequently, due to the low minimum wage paid to workers in Nigeria at NGN 18,000 = $116.13 per month.; any increase in pump price o f petrol is easily felt by the people and automatically translates  into  price  increases  in  other  areas  such  as  costs  of transportation,  food,  shelter  and  other  basic  household  needs, hence the resistance from the people each time the price o f petrol goes up. The NGN 18,000 = $116.13 per month as salary is too small to enable people live quality life.
Justifying the deregulation policy of the Federal Government in  the  Nigerian  petroleum  sector,  arguments have surfaced that deregulation policy has the capacity to reform and reorientate the Nigerian public and private businesses to a better value system of transparency and accountability as a way of tackling effectively the menace of corruption.  In defending the announcement of the new petrol price regime that commenced on  1st' January, 2012 as the outcome of the total deregulation of the Nigerian petroleum sector  (from #65  to #141  per  litre)  by  the  PPPRA,  the Federal Government argued that the need for the deregulation of the petroleum sector  of the Nigerian  economy  has  become  so urgent  because  of  the  desire  for  economic  growth  and infrastructural  development. To achieve the development goals of the Federal Government, more revenue is required, yet so much is spent on fuel subsidy. For instance, while the amount paid on petrol importation by the government as subsidy was put at NGN1.5 trillion or USD9.68 billion in 2009, it rose to NGN 1.7 trillion or USD10.96 billion in 2011.  Furthermore,  while  recurrent expenditure has consistently increased since 1999 when Nigeria returned to democratic  governance,  capital  expenditure on the other  hand  has  continued  to  decrease.

The implication  is  that  if development  is  truly desired  in  the  country,  then  deregulation  of  the  Nigerian petroleum sector must be encouraged, implemented and an end put to the payment of subsidy on petroleum products. It was in a bid to overcome the problem of inefficiency in government  owned  business  ventures;  eliminate  fuel  subsidy and  corruption  in  the  public  sector  that  made  the  Federal Government to  redefine  its  role  in the economy. The government  has  now  limited  itself to  the  role  of creating  the enabling  environment  for private  sector  intervention  aimed  at facilitating sustainable growth and development in the country. This role is to be achieved through: the reduction in the duration and  cost  o f  registering  a  business;  simplification  and harmonization  of  the  tax  systems  and  payment  channels; reduction in the turnaround time and cost of obtaining building permits; ensuring easy access to affordable and long-term finance; expansion of Information  Technology  (IT)  infrastructure  to facilitate easy access to Internet and telecommunication services; encourage both local and foreign investors by improving ports and customs  management  (48-hours  clearance  o f goods  at  the  sea ports);  eliminating  immigration  bottlenecks  (simplify  visa issuance and work  permits);  improving  security  of  lives and property; complete  the  modernization  of  the  transportation system; and improve basic critical infrastructure.  Considering  the  current  revenue  predicament  of the Federal Government,  the  successful  implementation  of  the deregulation  policy  of  the  Nigerian  petroleum  sector  has  the potential of creating more jobs, bringing about development and enhancing the living standard of the people.

BARRIERS TO TOTAL DEREGULATION OF THE NIGERIAN PETROLEUM SECTOR

Cost of Governance refers to increased recurrent and personnel cost or expenditure of the government. And this has continued to rise  over  the  years  without  corresponding  meaningful development  in  the  country.  A bloated  but under performing public bureaucracy,  an expensive presidential  system  and  some  unviable  sub-national  units conjointly exacerbate the delicate/precarious position on cost of governance in the Nigerian Public Sector.

The  observation  that  over  70  percent  of  the  recurrent expenditure  in  the  2012  national  budget  was  dedicated  to  the maintenance of political office holders in Nigeria is sure to affect development adversely. To support the above view, the Presidency  had a feeding allowance of NGN1  billion ($6.45 million); the  budget for fuel and electricity generating set was NGN 1 billion for  the Presidential villa; two bullet proof cars for the Presidency was NGN280 million (USD 1.8 Imillion); budget for dinning set up was NGN  300  million or USD1.94 million (also  for the  Presidential Villa).  It  has  also  been  documented  that  the  Nigerian  Federal lawmakers  are  about  the  highest  paid  in  the  world,  with  the maintenance cost for each Senator for four years at approximately NGN3 billion or $19.35 million.
Corruption connotes misuse of official powers to obtain personal advantage or favouring  one's  associates. Corruption could also mean betrayal o f trust resulting directly or indirectly from  the  subordination  of  public goals  to  personal interests. These connotations of corruption are conspicuous in public management in Nigeria and underlines elite complicity in resource plunder as corroborated by the  following  examples:  the  Pius  Okigbo  Panel  of  enquiry instituted by the late General Sani Abacha’s military government found  General  Babangida's  military  government  (1985-1993) guilty  of gross  mismanagement  or  outright  diversion  o f public funds  to  the  tune  o f  USD12  billion.  These mismanaged  funds  could have  redressed  infrastructural  deficits, created more jobs for the unemployed, enhance living standard of the  citizenry,  and  lead  to  deceleration  in  the  rate  of underdevelopment.

Corruption is the primary cause of poverty  in  Nigeria,  and  this  has  become  economically  and socially paralysing despite the production o f two million barrels of crude oil per day, which has the potential of conferring enormous wealth on the country derivable from the export o f oil and natural gas. Nigeria realised USD300 billion or NGN46.5 trillion within twenty years from  the  sale  of crude  oil  in  the  international  market  without concrete development to show for it.  The  KPMG  (audit  firm)  report  revealed that the  cost  of subsidy  payment  on  petroleum  products  not  consumed  by  end users due to losses from theft and those not supplied between 2007 and  2009  amounted  to  NGN 11.8  billion  or  USD76.13  million. These explains the poverty situation in Nigeria (one of the  twenty  poorest  in  the  world)  and  why  the  citizenry  are skeptical  of the  total  deregulation o f the petroleum  sector.  This position was taken further by a UN report that noted:

Seventy percent of the population is classified as  poor,  with  35  percent  living  in  absolute  poverty. Going  by  the  1991  population  figure  o f  120  million, those living below the poverty  line were  84 million.. .if the country's population has grown to 140 million according to the new census figures  o f 2006, then by analogous reasoning, the number o f people  living  on less  than one  dollar in  a day must be  98  million.  This means  that  another  14 million impoverished people have been unleashed on the  country.  This  figure  is  more  than  the  population o f oil producing states o f Bayelsa, Rivers, Delta, and Cross-River States put together  going by the  2006  census  figure.  The  combined population  of  the  Niger  Delta  Oil  producing Region is  $13.85million.

It is obvious from these narratives that corruption is a major drawback and disincentive to development in Nigeria. Crisis of confidence on Government Policies relates to the lack of trust by the citizenry in government decisions and programmes.  Research has  shown that the  failure  of governance  underscores  citizen's distrust in government (Torres, 2005). Successive central  and  sub-national  (units)  administration  in Nigeria,  hardly  keep their ends of the social contract bargain. The attitudinal inclination by  government  tends  to  circumscribe  citizens'  support  for government policies as demonstrated by the six days nationwide strike/opposition  to  total  deregulation  of the  petroleum  sector which was announced by the Federal government (under former President Goodluck Jonathan) on 1S1 January, 2012.

Consequently, the government had to soft pedal after losing many  man-hours  estimated  at  a  cost  of  NGN300  billion  or USD1.94 billion to the strike. Another measure to demonstrate good faith on the part of Government was the announcement of the reduction  of the pump price  of petrol from NGN 141  to NGN97. These avoidable losses to strike could have  been  used  for  infrastructural  development,  employment creation for the unemployed with a trickle-down effect on standard of living, had the government cultivated the trust of the populace through  effective  public  service  delivery  and  better  economic empowerment for Nigerians.

There is no doubt that, though, Nigeria is among the world’s leading oil and gas producing countries of the world, yet has been encumbered in a paradox where fuel and power shortages, have become the order of the day in the midst of plenty thereby negatively impacting on both infrastructural  and  human  capital  developments. It is worthy of note  that a total of 445,000 barrels of crude oil per day are reserved for domestic consumption but the capacity of local refineries stand at 170,000 barrels per day, prompting  a  balance  of  275,000  barrels  difference  to  be  refined  abroad  and  imported  into Nigeria.  Also,  the  four  existing refineries in Nigeria which ought to produce at full capacity at some points became moribund and often times when operational produce below capacity for whatever reasons. Similarly, the dire  need  to  deregulate  the  downstream  sector  became  imperative  due  largely  to  the  very dilapidating  state  of  the  existing  refineries  with  its  attendant  inefficiency  in  refining  and distribution,  ineffective  and  fluctuating  price  of  the  products  as  well  as  the  propensity  for institutionalised monopoly  having adverse consequences on the country’s economy. All these have been on the front burner  of national discourse, hence the arbitrary scarcity and the poor pricing mechanism of the petroleum products are said to be fluctuating and skewing against the impoverished Nigerian populace who are supposed to be the major beneficiaries while the state officials in collaboration with their comprador oil cartels/cabals appropriate from the existing arrangements. 

There  is  no  gainsaying  the  fact  that  the  intended  objectives  of  the  founding  fathers  of  the subsidy  regime  was  to  alleviate  poverty  by  subsidising  the  private  consumption  of  refined products to maintain some level of stability in the pump price. Rising international prices of crude  oil  and  refined  products,  over  the  years,  have  resulted  in  the  significant  increase  in subsidy payments to fraudulent oil marketers, hence the colossal damage to the country’s ailing economy.  This  has  made  it  difficult  for  the  country  to  meet  daily consumption needs of 40 million litres, and consequently  has resorted to over dependence on importation  of  refined  products  to  meet  the  local  consumption.  Since  the  country  largely depends  on imported refined petroleum products and with a preponderance of a poor population in dire need of the products, successive governments have adopted palliative measures by way of subsidy to ameliorate  the sufferings of Nigerians. Yet, in the face of these measures, there have been monumental perennial scarcity and  arbitrary  price increases of petroleum products in Nigeria since 1999.  This has resulted in  so many stakeholders and researchers  to call  for a complete deregulation of the sector as way of solving the perennial scarcity and arbitrary price increases  of  petroleum  products  even  in  the  face  of  global  fall  in  oil  prices  and  revenues accruable to the country.

The  deregulation  policy  conceived  in  2003  was  not  only  intended  to  remove  regulatory controls on prices of the products but the unbundling of the entire sector to allow  free market economy where new entrants can invest in the refining, sales, marketing and distribution and even  importation  and  exportation  of  petroleum  products. The need to deregulate the downstream sector stems also from the state of Nigerian refineries and the lack of capacity to meet daily local consumption.    It  was  for  these  reasons  the  federal  government  under  President Olusegun  Obasanjo,  on  the  recommendations  of  the  Special  Committee  on  the  Review  of Petroleum  Products  Supply  and  Distribution  (SCRPPSD)  set  up  in  2001  to  review  the challenges  of  the  downstream  sector  of  the  petroleum  industry,  established  the  Petroleum Products  Pricing  Regulatory  Agency with  a  view  to  beginning  the  process  of deregulation. As recent events unfold in the petroleum industry, deregulation becomes  inevitable as  government  participation  in  the  downstream  sector  was  characterised  by challenges  as:  low  investment  opportunities  in  the  sector,  large scale  smuggling  of  petroleum  products,  pipelines  vandalisation,  low  capacity utilisation  and  refining  activities  in  the  nation’s  refineries,  scarcity  of  petroleum products, mismanagement of revenue from petroleum and high level of corruption in the state-owned petroleum parastatals vis-a-vis political office holders.

Deregulation has brought with it a number of changes in the downstream oil industry in Nigeria. The direction to take is to seek ways it can be duly implemented.  The policy was not the best solution the government could come up with. The  policy  rather  than  improving  the  standard  of  living  up  the  populace has made it worse. The deregulation is associated with increment of fuel prices; marketers have taken advantage of the opportunity. As it is the norm, increase in the price of fuel means inflation in the price of transportation, food, housing and many other necessities of life. Based on these, the deregulation policy was not the best the Nigerian government could have offered its citizens.  There was no functional structure put in place to initiate the policy effectively. 

The  following  are  suggestions  to  aid  in  the  implementation  of  the deregulation policy.

• The establishment of structures to implement the deregulation policy.  This is crucial to the successful implementation of the policy. This includes the formation of a blueprint for the policy; restructuring  of  the  civil  service  to  accommodate  the  changes that  will  come  about,  reformation  of  the  justice  sector  and  a functional legal and regulatory frame work. One of the problems in  the  energy  sector  are  fall  outs  of  the  absence  of  sectorial reform policies. For a successful implementation of the deregulation policy in the downstream oil industry, the inability of the banking sector to provide long term credit for over a period  of five years to the private  sector  and  little  credit  to  smaller  and  medium  sized enterprises needs to be removed. If the inability still exists, then the  private  operators with  licenses  to  build private  refineries  would  find  it  an  insurmountable  task.  The banks  should  be  in  a  position  to  render  soft  loans  to  these enterprises. The  judicial  sector  has  to  be  restructured  to  be  able  to address  the  changes  that  accrue  to  the  implementation  of  the policy.  It should be able to offer efficient enforcement of contractual obligations. In the absence of this, it should be able to encourage alternative dispute resolution and be in the position to enforce the awards. There should be a shift toward alternative dispute resolution techniques in preference to litigation. The regulatory body should be independent in every way. It should not rely on the government for its funds. It should be able to generate its funds on its own.  That  way  it  will  be strong  to  enforce  its  decisions  without  fear  or  favour.  For  the legal  frame  work,  existing  laws  should  be  amended  to  create the necessary investment environment. The Bills that are before both  Houses  of  Assembly  should  be  debated  upon  and signed  into  Law.  An  example  of  this  is  the  Bill  for  an  Act  to amend the NNPC Act CAP 320 so as to deregulate petroleum refinery. Also, new Laws should be drawn up to complete the deregulation process.  An  example  of  such  is  the  Nigeria Downstream  Oil  Deregulation  Act  that  was  proposed  in  the First  Nigeria  Downstream  Summit  on  September  2004. Others  are  a  Competition  Act  to  ensure  that  there  is  a  level playing  field  among  operators;  a  Restrictive  Practices  Act  to ensure that consumer interests are protected and to prevent the abuse of market dominance by any individual company. RPA is required to control cartels and other anti-competitive agreements.  It will establish the office of the Director of Fair Trading.  The Fair Trading Act will control monopolies and mergers that are likely to emerge from privatization.
• A  Social  Development  Agency  should  be  established  to cushion  the  effect  of  the  increase  in  the  price  of  petroleum products which in turn increases the cost of everything in the economy.
• There should  be  an  establishment  of  appropriate  agencies  for monitoring and enforcing standards.
• The deregulation policy should be backed by a plan to ensure that  the  existing  refineries  are  working  while  new  ones should  be  built.  That way, the nation can shift from exporting  crude  oil to exporting refined  oil  products. The  policy  should  encourage  the  domestic  production  of petroleum products to  eliminate  their  importation  for  internal consumption. The goal should be to shift from importing refined products to exporting them (as stated above). This will reduce foreign exchange usage; eliminate the freight insurance, interest and commission charges arising from import dependency. In addition, importation of oil comes with inflation and unemployment.
• The  refineries  and  other  NNPC  subsidiaries  should  not  be privatized but be allowed to compete with other private investors so  as  to  maintain  control;  ensure  stability  and  efficiency  of operators  involved.  This is what is attainable in other oil producing countries.  Privatization of national refineries will lead to total mortgaging of the national assets with its attendant implications on national security and investment.
• Pipeline capacity should be improved and the incessant problem of vandelization should be tackled. There is a modern technology in existence that protects pipelines from being vandalised. It triggers off an alarm once vandals strike.  This technology can be used on the pipelines.
• If prices of petroleum products must be deregulated, the refineries should be effectively repaired. If this is not put in place and  the  supply  problem  persists,  the  result  will  be  exorbitant import  parity  for  products  while  the  refineries  are  idle  and wasting.  Price deregulation without local supply will only further encourage import and seal all hopes of ever reviving the refineries and gainfully utilizing the vast assets therein. Also given the volatility of products’ prices in the international market and Naira exchange rates, the unstable exchange  rate  will create double jeopardy and uncontrollable sudden shocks in the system the economy will just get more comatose.
• The National Assembly should bring sanity to the downstream oil sector through harmonizing and streamlining the regulatory activities of DPR, PPPRA, PEF, the Federal Ministry of Commerce and the Standard Organisation of Nigeria. This will eliminate regulatory distortions as most of their legitimate functions overlap.
• The  proposed  Nigeria  Downstream  Oil  Deregulation  Act should  include  provisions  mandating  all  Joint  Venture Multinational  exploration  and  production  companies  to  locally refine  at  least  fifty  per  cent  of  crude  produced  and  that  local private  refineries  should  be  guaranteed  domestic  supply  of crude oil.
  

Scholars have argued that businesses are better organised and managed by the private sector in a development oriented manner.  This line of argument confirms that there is a relationship between deregulation policy and development, and supports the call for government to remove all restrictions to private sector participation in the economy.  Deregulation policy which allows market forces to determine prices and promote efficiency in public sector management is a response to this challenge.  By popular research, deregulation policy and  the  development  nexus  of the  Nigerian  petroleum  sector must be twined to achieve  the goal of development  in  Nigeria. Government at all levels should put  in place  measures  to fight corruption,  reduce  the  cost  of governance and earn citizens' trust in its activities which must be geared towards  effective  service  delivery  as  a catalyst for  the  successful implementation of government deregulation policy in Nigeria.

Conclusion

Successive governments in Nigeria since the inception of democracy in 1999 have faced the challenge  of  whether  or  not  to  adopt  deregulation  policy  in  the  downstream  sector  of  the petroleum industry. In fact, the decision of whether or not to adopt deregulation policy as a panacea  for  remedying  not  only  the  perennial  fuel  scarcity  and  arbitrary  price  increases in petroleum  products  but  the  ailing  economy  and  the  state  of  both  infrastructure  and  human capital has been an albatross around successive governments in Nigeria.  We interrogated the political economy of deregulation policy in the downstream sector of the petroleum industry in Nigeria since inception, hence contend that the subsidy regime of successive governments has not addressed the perennial scarcity and arbitrary price increases of petroleum products in the country let alone the economy.  The fuel subsidy regime has been an instrumentality of corruption as it has failed to address the original intentions of its founding fathers.

The downstream sector of the petroleum industry in Nigeria is one sector too many. The sector touches, to a larger extent, on both the very rich and common Nigerians. As soon as it sneezes, the entire country catches cold at once. Unlike the upstream sector where slight changes could take a while to be noticed by the populace, the downstream nose-dives when once there is a hiccup in the distribution chain. This is why, over time, successive governments have always played safe in matters concerning the downstream sector of the petroleum industry.  Caution has always been the watchword. This is also one sector that  appears to have an entrenched class interest  that  must  be  protected  by  the  managers  of  the  sector  to  avoid  a  backlash  on  their collaborative  economic  motives. This explains why it has not been easy for the ruling elite, over the years, to take decisive steps in addressing the rot they created in the sector. This  is why the  decision  of  whether  or  not  to  implement  the  deregulation  policy  by  successive administrations  in  the  downstream  sector  has  been  very  challenging.  To implement a fully deregulated downstream petroleum economy requires very strong political will on the part of government. It is either they are afraid of the backlash of their actions or inactions from their collaborators or that they are afraid of the political consequences of their actions or inactions as it were.  Far-reaching  measures  that  would  launch  the  country  into  a  fully  deregulated petroleum economy are themselves politically and socio-economically sensitive to handle with a wave of hand by any administration.

The myriad of arguments for and against the deregulation policy is enough to hang a government in the balance in the choice of which policy to pursue due largely to the dire consequences each action or inaction may cause the nation. Whichever way, what is most important  to  the  people  is  what  would  reduce  the  untold  hardship  suffered  by  the  teeming consumers of the products across the country. It is on this note that we conclude that the benefits of a fully deregulated downstream sector of the petroleum industry far outweigh those of  a regulated regime. The earlier the country implements the deregulation policy the better for the economy. And there is no better time to do so than now as it would largely address not only the perennial scarcity and arbitrary price hikes of petroleum products in the country but stimulate the  economy  such  that  the  ailing  physical  infrastructure  and  human  capital  will  be  turned around for better.    The multiplier effects of the socio-economic and political benefits of the deregulation  policy  in  the  downstream  sector  of  the  petroleum  industry  in  the  country  are enormous and should not be sacrificed on the alters of politics and economics.

The future of Nigeria’s downstream sector of the petroleum industry lies in the elite in power especially now that the entire global oil prices have fallen below expectation. Going into full deregulation, though with its initial hiccups and devastating effects on the masses, would have little or no effects as the current international oil prices would have no significant differences and consequences that could ignite the usual mass actions from the civil society organisations and organised labour.  The  deregulation  policy  requires  this  kind  of  subtle  but  far-reaching approach in addressing the long years of disequilibrium in the supply chain of the downstream sector  of  the  petroleum  industry.  Practical steps in engaging critical stakeholders in the sector pursuant to the implementation of the policy is a sine qua non towards a joint identification of social safety net that will cushion the effects of the policy in the event that the global oil prices rise astronomically to avoid a repeat of occupy Nigeria mass action in 2013.

A complete deregulation policy in the downstream sector that will result in government’s outright removal of fuel subsidy  remains the only antidote to addressing the  perennial  scarcity  and  arbitrary  price  increases  in  petroleum  products  by  ambitious petroleum marketers in the country. It is by so doing that market forces shall become the major determinants of the prices and distribution of petroleum products for the teeming consumers in Nigeria. A move that will not only address the country’s economic challenges but will ensure that  savings  that  would  accrue  from  fuel  subsidy  removal  and  other  revenues  from  the stimulated economy could be put into addressing the ailing infrastructure and human capital in the country. The nexus between deregulation policy of the Nigerian Petroleum sector and development is confirmed by data presentation and analysis. The introduction of measures to tackle  corruption,  reduce  cost  of governance,  and  earn  citizens' trust are part of the prerequisites for development in Nigeria. It is through these measures and deliberate efforts at strengthening  institutions,  transparent  and  accountable  public governance that the country can be on its way to development.

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