The Nigeria Oil Industry Essay

Published: 2020-01-30 08:51:34
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Nigeria is endowed with vast natural resources including such minerals as petroleum, limestone, tin, natural gas and others (Anyanwu et al, 1997:3). All these minerals have remained untapped, except petroleum which had dominated Nigerias economy since the 1970s. Today, petroleum is by far the most widely used energy resource world wide. Its production and distribution, according to Asimi(2005:8), affects the relations among nations and even the purchasing power of some individual citizens.

The first discovery of oil in commercial quantity in Nigeria was made in 1956. Shell- BP was the principal company undertaking oil exploration and production activities in the country, although there were sporadic explorations by other companies, prior to that date (Gidado,1999:53). According to him, Nigerian government did not embark on serious oil policies for the country until 1967. The rapid inflow of oil revenue to the country in the early 1970s, led to the complete abandonment of agriculture which was Nigerias mainstay of economy.

It was observed that since the beginning of oil production in commercial quantity, Nigeria has been rated high, the world over, such that she is declared Africas second largest producer after Libya, eighth largest exporter in the world and the worlds tenth largest oil reserves (Omotoso, 2010:2). Since Nigerias first export of crude oil in 1959, it has become the major contributor to the countrys economy, and that is why over 80 percent of the countrys foreign exchange earnings come from the oil sector.

Nigeria has been enjoying consistence increase in the revenue from oil. For instance, a barrel of oil was sold at 3. 00 dollars per barrel in 1971,12. 42 dollars and 37. 00 dollars a barrel in 1974 and 1980 respectively. Following steady increases in the sales, receipts swelled as well from 300 million dollars in 1970 to 4. 2 billion dollars by the end of 1974, when oil production was 2. 3 million barrels per day (Asimi, 2005:8). By1976, oil revenue had risen to 6. 3 billion naira and in 1980, the peak of 12 billion naira was achieved (Nigerian oil Directory, 1993: 53).

Considering the current price of crude oil in the international market, which stands above 70 dollars a barrel, the revenue accruing to the country, has equally increased correspondingly. The huge revenue notwithstanding, one may be tempted to ask, if this God-given commodity has brought curse instead of blessing, since Nigerian people are yet tohave smiling faces right from the inception of oil production and exportation in the country. It has been protests galore against short supply and steady increases in the pump prices of refined products.

In order to cushion the effects of these increases and reduce direct burden on the citizenry, the federal government instituted the policy of subsidy. The essence of this policy option was to reduce the prices of the products, but at the expense of the federal government that was paying whooping amount of money. For instance, the sum of about 2. 5trillion naira was spent on fuel subsidy by the federal government between 2006 and 2009, and 600 billion naira budgeted for the fiscal year 2010 (Movement for Economic Emancipation,(2010:10).

But what really disturbs the minds of many Nigerians is that despite the huge expenditure on subsidy, the prices of refined products continue To rise incessantly, hence consumers buy them at a rate higher than expected. Ezeagba (2005:43), asserts that a situation of subsidy exists, when consumers are assisted by the government to pay less than the market prices for the product they are consuming. That is why the essence of the subsidy in the present circumstance in Nigeria, is to reduce the official pump prices of petroleum products paid by Nigerian consumers.

It is unfortunate to observe the deteriorating nature of the countrys social amenities, critical infrastructure and other development indices, when trillions of naira are believed to have been spent on subsidy. It is therefore, against this background that this paper seeks to examine deregulation of the downstream oil sector and to ascertain whether the policy would solve the problem of scarcity and incessant increases in the prices of petroleum products, which to my own mind have caused a lot of instability in the economy of this country.

According to Olayiwola (2009), oil operations commenced in Nigeria effectively in 1956. A brief historical excursion indicates that oil exploration started in 1908 in Lagos and Okitipupa coastal areas both in Western Nigeria by the Nigerian Bitumen Company established by a German Consortium. Between 1908 and 1956, various exploration and exploitation continued in various parts of Nigeria. In 1956, oil was discovered in commercial quantity at Oloibiri, present day Bayelsa state (Ihua, Ajayi & Eloji, 2009); in the Niger Delta region of Nigeria by Shell DArcy.

This development heralded Nigerias membership of Organisation of Petroleum Exporting Countries (OPEC) in 1971. The exploration of oil and gas is predominantly concentrated in the Niger Delta where multinational companies and a few of the indigenous ones are engaged in production and exploration of oil. The oil industry comprises the upstream, the downstream and service sectors. The upstream sector focuses on mining, exploration, production and exportation and is dominated by multinational companies (Ogbeifun, 2009).

Chevron, Shell, Agip, Elf, Texaco, Esso-Mobil interalia belong to the upstream sector. It was argued from different quarters in Nigeria that deregulation of downstream oil sector without adequate local supply, will further aggravate importation and virtually seal all hopes of ever reviving the existing refineries, and gainfully utilizing the vast assets therein (Federal Ministry of Information, 2000:91).

To rectify this situation, government had tried to lure private investors to float refineries and assist to end the fuel crisis in the country, but so far, no serious private investor had taken up the challenge. But Adeogun (2010:43), contended that the quest to attract private investors into the petroleum refining business may remain a pursuit in futility, as no investor would be willing to invest in the sector under a price regulated regime. This implies that the existence of functional refineries is significantly dependent on the introduction of effective deregulation policy.

This was the reason why the Nigerian National Petroleum Corporation (NNPC) on behalf of the federal government and China State Construction Engineering Corporation (CSCEC), on 31stMay, 2010, signed a Memorandum of Understanding (MOU) worth N4. 2 trillion, for the building of three new refineries (Okpole, 2010:9) According to him, the move is to accelerate the birth of refineries and stem the flood of imported refined fuel currently estimated to cost about N1. 5 trillion yearly.

Okpole was of the view that the successful building of new refineries will no doubt reinforce deregulation of the downstream sector of the nations petroleum industry. He equally believed that they (new refineries) will add some capacity of 750,000 barrels per day to Nigerias refining infrastructure and position NNPC to engage profitably in the international trading of refined petroleum products It is unfortunate to observe however, that while the government was making frantic effort to resolve the fuel crisis in the country, there were nefarious groups of individuals who have been working strategically against such effort.

For instance, there exist a syndicate believed to be responsible for the dysfunctional state of the nations refineries so as to continue to import finished products at a price determined by them(Onyekwuere, 2009:19). According to him, President Umaru Musa Yar Adua in May 2009, attributed the problem in the oil sector to the handiwork of cabals. It is believed among most Nigerians that, it was corruption that crippled Nigerias refineries. One school of thought was of the view that unless corruption is wiped out in Nigeria, there is no way Nigerians will progress as a people.

For instance, why will the federal government go to Senegal, a small country that does not have crude oil deposit, to import refined petroleum products? (Aturu, 2009:20). This has been the handiwork of the group since the country that has been undermining the efforts of the government, to resuscitate or build new refineries. The proposal was always killed by them, for fear of loosing their source of income. This was because it would put an end to their import racket, thus taking business away from their outside collaborators (Onyekwere, 2009:23).

Their activities in Nigerias oil sector have been causing a lot of worries in the country and that is why the campaign for deregulation of the sector should be strongly encouraged. The activities of the economic saboteurs notwithstanding, the government has continued to hold positive view about the implementation of the deregulation policy in the country. The government believes that the policy will no doubt make the products available and even cheaper.

It contended that deregulation is most needed presently in Nigeria, especially, this time when the government is finding it very difficult to sustain fuel subsidy which has gulped large amount of public money. The government believes that through deregulation, the level of distortions and corruption existing in oil transactions, will reduce drastically and will offer more benefit to Nigerians. Deregulation of the downstream oil sector will help to redeem this countrys image which has been battered internationally, due to corruption.

Has our image not been damaged when Nigeria, the second largest exporter of crude oil in Africa has the impetus to import refined petroleum products from a small country like Senegal that does not have any crude oil? This is the handwork of the cabals in the country. Implementation of the policy will bring to an end the existence of cabals that have been undermining all strategies of the government to revitalize our ailing refineries. The cabal is a group of dissidents and economic saboteurs, that is out to undermine the sovereignty of this great nation.

The members are known because they occupy strategic positions in the affairs of this country. For a successful deregulation policy of the downstream oil sector in Nigeria, this group of people must be fished out and prosecuted. This contention is in line with the assertion by Hon. Bamidele, the Deputy Chairman, committee on Petroleum Resources, that deregulation of the downstream oil industry would deal a lethal blow on the activities of the cabal, who he said had continued to hold the country to ransom.

This is in spite of the fact that the Obasanjo administration attempted to break their backbones through partial deregulation by giving refineries to private investors in 2003 (Badmus, 2009:31). For effective implementation of deregulation policy, the government should provide enabling environment for its take-off. What happened in Ghana in 2002 when price increases in petroleum products were anticipated should be an eye-opener to Nigeria.

During this period, it took the Ghanaian government over one year to enlighten her citizens on the coming price increases, so that when it finally came, nobody was taken unawares. In order to cushion the expected multiplier effects of such increases, more buses were injected into the transport sector, to minimize the possible increase in the fares. In spite of the fact that Ghana is not an oil exporting country, there was no appreciable increases in the pump prices of fuel and transport fares in the country, when the oil price started rising in the international market.

It would not be out of place therefore, if Nigeria should emulate Ghana in this circumstance, by trying to cushion the possible effects of deregulation before it comes. The importance of this cannot be overemphasized, since a rise in the pump prices of petroleum products is optimistically anticipated. One of the greatest challenges facing the downstream petroleum sector in Nigeria is the issue of fuel importation. It is believed that deregulation would address this problem squarely.

With deregulation, subsidy which has been a conduit pipe and source of fraud in Nigeria, will be a forgotten issue. Furthermore, competition which is an important component of deregulation policy will encourage private sector participation in building new refineries, thereby increasing refining capacities in Nigeria. We cannot continue to import petrol, when we have the capacity to produce what we can consume as well as for exportation (Okere, 2010). In other words, Nigeria has all the where withal, not only to be self-reliant but even enough to export refined products.

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