Prices Of Petroleum Products In Nigeria Economics Essay

Introduction

The monetary values of crude oil merchandises in Nigeria have been a beginning of contention and contention. Meanwhile, the Nigerian economic system which used to depend on the agricultural sector decennaries ago now depends to a great extent on the oil sector which, the International Monetary Fund ( IMF ) says histories for over 95 per centum of export net incomes and about 65 per centum of authorities grosss.[ 1 ]

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The remotion of subsidies on crude oil merchandises remains a combative issue in Nigeria.

The Federal Government of Nigeria has of recent attempted to liberalise the monetary value of the assorted fuels prior to the terminal of 2010 or in early 2011 implying that the Government will no longer pay subsidies to importers of refined oil merchandises. The entire cost of importing the refined oil is shared between the authorities and the importers therefore cut downing the overall cost to the importers and enabling them sell at a lesser monetary value than would hold normally been sold in the absence of subsidies. The ultimate donees here are the Nigerian consumer every bit good as the Nigerian economic system.

A Nigerian presently pays N65 per liter ( somewhat less than US $ 0.5 ) for PMS used to run their autos and power their generators but the cost of importing the gasoline and acquiring it to the gasoline Stationss is said to be over N90 or $ 0.60 per liter. The authorities therefore gives subsidy to cover the difference, cut downing the cost to the importers enabling them still gain net income from the concern every bit good as maintaining monetary values down for the consumers.

Giving subsidy for fuel began during the military regulation and has surprisingly remained the most sustained Acts of the Apostless of the authorities. The authorities has ne’er been seen to back up any industry in a sustained mode assisting it keep its comparative advantage part broad and still go on being globally competitory. The economic every bit good as societal impact of the diminished refinement sector has been offset by the subsidies. Even though the Nigerian authorities saw itself holding to pay about every bit much as the other regional authoritiess for locally used fuel, the load of the extra costs were non transferred to the consumers giving it an advantage over the other West African states. The state therefore retained its place as the economic hub of the Economic Community of West African States ( ECOWAS ) part. But the accretion of infrastructural and institutional inefficiencies and broad spread systemic corruptness began to put in even as regional states were get downing to set their act together and outdo Nigeria in several of import sectors. Ghana from 2006, with better policies implemented and steady electrical power supply, has become the magnet in the West African part for foreign direct investing. Several transnational corporations and even Nigerian enterprisers have now chosen Ghana as their location of pick for their central offices.

A reform bundle for the crude oil industry known as the Petroleum Industry Bill ( PIB ) is now being deliberated upon in the Nigerian National Assembly. The PIB includes a program to halt the payment of oil subsidies to importers and deregulate fuel monetary values. The aim of this PIB is to one time once more reconstruct Nigeria to its economic leading place of the part. The measure is meant to heighten the public presentation of the industry by bettering rough extraction and oil geographic expedition and promoting more private investing, particularly in the downstream sector where Nigeria needs to resuscitate bing refineries and construct new 1s capable of run intoing all domestic and international demand for refined merchandises.

Most of the public attending received has been focused on one facet of the reform measure – the authorities ‘s purpose of taking fuel oil subsidies. Consumer advocators, particularly the trade brotherhoods, have condemned the remotion of this subsidy. There is a general support for the PIB, but the remotion of fuel subsidy is non being accepted. If the monetary value deregulating goes through, there would be at least a 54 per centum addition in the monetary value Nigerians must pay for gasoline, kerosine and Diesel. The US $ 1.97 per gallon or $ 0.43 per liter, which it costs now to purchase gas at the pumps, will increase to between $ 3.04 and $ 4.54 per gallon. The brotherhoods are discerning of the effects that these monetary value addition will hold, theorizing that high rising prices will follow.

Suffice it to state that the Nigerian economic system ( which includes the oil industry ) is crippled, dragged down by political agitation, hawkish mutiny, infrastructural and institutional inefficiency and corruptness. The oil and gas industry suffers from these as good. The authorities desires to repair these issues now with reforms based on the PIB but critics fear that fuel monetary value deregulating, which will no uncertainty take to monetary value additions – will deteriorate the economic system farther, unless authorities wages attending to the broken down refineries and revives them- a undertaking that would demand honestness, clip and a immense sum of resources. The authorities ‘s promise of revived refineries seems far-fetched seeing that old efforts at this, which gulped one million millions of dollars, have non been productive. The brotherhoods are hence recommending for at least four refineries to be repaired and in full usage before the monetary value reform is undergone.

However, advocators of the proposed reforms inside authorities seem dying to revive this industry. They believe that the execution of the PIB reform bundle as a whole would make this. They believe that by reviving the industry, there would be a greater influx of FDI every bit good as increased competition which would take to increased efficiency and the credence and execution of the PIB is the right topographic point to get down. The private importers of crude oil merchandises every bit good as the domestic sellers besides seem acute about the planned deregulating. For them, it is because soon, the authorities continues to be sulky in doing payments go forthing them to bear the cost of importing entirely before the subsidy payments eventually go through. In 2009, The Central Bank of Nigeria ‘s audit of commercial Bankss showed oil sellers to be the major borrowers ( albeit defaulting 1s ) from the Bankss. These oil sellers, in bend, put the incrimination on the authorities ‘s failure to pay subsidies at the appropriate clip. The Petroleum Products Pricing Regulatory Agency ( PPPRA ) was accused of frequently taking old ages to consequence payment and in some instances did non pay in full. Sellers therefore believe that deregulating will guarantee sellers retrieve their investings and net incomes straight and quicker. By extension, hence, the commercial Bankss would besides urge that this deregulating to takes topographic point.

On the other manus, the Nigerian consumer sees monetary value deregulating as an easy manner out for a authorities that continuously remains loath to pay out over N400 billion every twelvemonth in subsidies to the oil sellers. Consumer groups are convinced that deregulating agencies Nigerians in the close hereafter will be paying the monetary value for authorities and industry failures – failed public endeavors due to the inefficiency in authorities procedures. A clear illustration is the instance of the Nigerian National Petroleum Company ( NNPC ) which, for a long clip, had the remarkable licence for the importing of refined crude oil merchandises into the state. This caused a figure of supply and distribution hiccoughs taking to the issue of licenses to private persons and corporations for the concern. However, these private operators manage merely about 30 per centum of the entire imports with the majority of the subsidies still traveling to the NNPC.

Basically, the oil and gas sector is important to Nigeria for gross coevals, investing and state broad growing and development. The Nigerian economic system is to a great extent dependent on the oil sector, which accounts for 95 per centum of authorities grosss. Even with the significant oil wealth, Nigeria ranks as one of the poorest states in the universe, with a $ 1,000 per capita income and more than70 per centum of the population life in poorness.

BACKGROUND OF THE STUDY

By the clip Nigeria became politically independent in October 1960, agribusiness was the dominant sector of the economic system, lending about 70 % of the Gross Domestic Product ( GDP ) , using about the same per centum of the working population, and accounting for approximately 90 % of foreign net incomes and Federal Government gross. The early period of post-independence up until mid-1970s saw a rapid growing of industrial capacity and end product, as the part of the fabrication sector to GDP rose from 4.8 % to 8.2 % . This form changed when oil all of a sudden became of strategic importance to the universe economic system through its supply-price link.

Crude oil was foremost discovered in commercial measures in Nigeria in 1956, while existent production started in 1958. It became the dominant resource in the mid-1970s. On-shore oil geographic expedition histories for approximately 65 % of entire production and it is found chiefly in the boggy countries of the Niger Delta, while the staying 35 % represents offshore production and involves boring for oil in the deep Waterss of the Continental shelf. Nigeria has proven militias of approximately 32 billion barrels of preponderantly low sulfur light petroleum, which at current rate of development could last another 38 old ages. The purpose is to spread out the militias to 40 billion barrels and production capacity to 4 million barrels per twenty-four hours ( attention deficit disorder ) .

The monolithic addition in oil gross as an wake of the Middle-East war of 1973 created unprecedented, unexpected and unplanned wealth for Nigeria. Then began the dramatic displacement of policies from a holistic attack to benchmarking them against the province of the oil sector. Now, in order to do the concern environment conducive for new investings, the authorities began puting the newfound wealth in socio-economic substructure across the state, particularly in the urban countries. As good, the services sector grew. The comparative attraction of the urban Centres made many able-bodied Nigerians to migrate from the backwoods, abandoning their farming areas for the metropoliss and trusting to partake in the growth and comfortable ( oil-driven ) urban economic system. This created societal jobs of congestion, pollution, unemployment and offenses.

The national currency, Naira, strengthened as foreign exchange influxs outweighed escapes, and foreign militias were built up. Up until 1985, the Naira was stronger than the US Dollar. This encouraged import-oriented ingestion wont that shortly turned Nigeria into a perennial cyberspace importer, which became a major job when oil net incomes decreased with lower international oil monetary values. External militias collapsed, financial shortages mounted and external adoption ensued with the “ elephantine loans ” taken in 1979. Most of Nigeria ‘s macro-economic indices became unstable and worrisome.

Several policy enterprises to turn to the faulty construction and inefficiencies were taken, but ill implemented and sometimes contradictory ( with instances of self-interest motivated reversals ) . These created new deformations and farther weakened the inchoate establishments for policy execution.

The mean Nigerian therefore, became so sensitive to petroleum oil and all the variables environing it, to the extent that any development in the international oil markets invites an about instantaneous reaction from domestic economic agents and policy shapers likewise.

In kernel, policy preparation appears to react to the oil state of affairs or effort to take advantage of it. This normally takes the signifier of “ expand outgo when oil net incomes addition, maintain the place when there is a dip in net incomes and seek a despairing manner out when there is crisis. ” Another dimension to the oil issue is to “ look for chances in the oil sector to heighten Government gross ” . Invariably, everything points in the way of oil.

STATEMENT OF RESEARCH PROBLEM

The Nigerian oil sector can be categorized into three chief sub-sectors, viz. , upstream, downstream and gas. The most debatable over the old ages has been the downstream sector, which is the distribution arm and connexion with concluding consumers of refined crude oil merchandises in the domestic economic system. The ceaseless crisis in supply of merchandises culminated in the determination by Government in 2003 to deregulate the downstream sub-sector. However, the mode of its execution has been controversial because it ignores the economic worlds in Nigeria.

The over-dependence on oil has created exposure to the vagaries of the international market. In peculiar, the topographic point of oil in the mind of the mean Nigerian has become more profound since the “ imperfect ” deregulating of the downstream section of the Nigerian oil industry in 2003. The contradiction is more glowering now with the recent rise in rough oil monetary values at the planetary markets, which meant more external net incomes for Nigeria, but besides increased the disbursal load on imported refined crude oil merchandises! It is such contradictions ( possibly aberrances ) that make the Nigerian economic system appear strange at times, as policies seem to disregard what appears obvious to make. As such, policies designed to turn to the lacks and defects in the construction terminal up being ill articulated and/or implemented because of regional, political or rent-seeking selfish involvements. Obviously, it is the same rent-seekers that continually sabotage the reinvigoration of the domestic refineries, doing Nigeria to depend on importing of refined merchandises to run into the domestic demand.

Aim OF STUDY

To determine how the Nigerian oil and gas industry has fared

Beginnings OF DATA AND RESEARCH METHODOLOGY

Based on the nature of the survey, the extracted information for the survey are chiefly from secondary beginnings peculiarly from Central Bank of Nigerian ( CBN ) statistical bulletin Bureau of Statistics publications.

The research is based on researching the basic causal relationship between crude oil liberalisation and economic system growing. Variables are allowed to interact among equations to prove for multi-collinearity. Appraisal is by the ordinary least square ( OLS ) technique of appraisal.

Further, the consequence of higher crude oil monetary values on the aggregative monetary value degree, existent growing, and income distribution is appraised within a multi-sector estimable general equilibrium ( CGE ) theoretical account.

Significance OF THE STUDY

At the terminal of the survey, the result will be utile in the undermentioned ways:

It will be of huge usage to policy shapers because it will further heighten their cognition on the impact of crude oil liberalisation on the Nigerian economic system.

It will help in foregrounding how the state ‘s exposure in the oil sector can be curbed. It is known that Nigeria ‘s hydrocarbon resources are the pillar of the state ‘s economic system but production and growing of the oil and natural gas sectors are frequently constrained by many factors including instability in the Niger Delta ( the southern part of the state ) . The oil industry is chiefly located in the Niger Delta where it has been a beginning of struggle. Local groups seeking a portion of the oil wealth frequently attack the oil substructure and staff, coercing companies to declare force majeure on oil cargos. At the same clip, oil larceny, normally referred to as “ bunkering ” leads to grapevine harm that is frequently terrible, causing loss of production, pollution, and coercing companies to introvertish production. The industry has been blamed for pollution that has damaged air, dirt and H2O taking to losingss in cultivable land and diminishing fish stocks.

The result of the survey, besides, will be of importance to international community, local and international oil and gas decision makers, economic development experts, and others in related Fieldss of survey.

Plan OF THE STUDY

This research survey is divided into five separate chapters. The first chapter is the facet of the survey that trades with the debut to the survey. It serves as the overview of the full research work. Chapter two covers a comprehensive reappraisal of relevant sentiment of high bookmans and schools of idea on the capable affair.

Research methodological analysis is presented in chapter three. The adoptive methods of research and theoretical accounts are described in this chapter including the methods used in assemblage and analysing the information. In chapter four, informations related to the survey is presented and analyzed. This subdivision reports the consequence of the policy simulation. The 5th chapter contains the sum-up of the survey including the presentation of findings of the research and recommendations.

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