A THESIS ON ENERGY LAW THAT CRITICALLY EXAMINES THE LEGAL ISSUES IN THE DEREGULATION OF THE DOWNSTREAM SECTOR OF THE NIGERIA INDUSTRY: CONSIDERING THE ARGUMENTS IN FAVOUR AND AGAINST DEREGULATION INCLUDING ISSUES PERTAINING TO OPERATION OF THE REFINERY ,WITHDRAWAL OF OIL SUBSIDIES AND APPROPRIATE PRICING IN A LIBERALISED ECONOMY. . INTRODUCTION. Nigeria is blessed with vast quantity of oil making it the 6th largest oil exporter in the organization of petroleum exporting country. Oil is a major source of energy in Nigeria and the world in general.
Oil being the mainstay of the Nigerian economy plays a vital role in shaping the economic and political destiny of the country. Although Nigeria’s oil industry was founded at the beginning of the century, it was not until the end of the Nigeria civil war (1967 – 1970) that the oil industry began to play a prominent role in the economic life of the country. Nigeria can be categorized as a country that is primarily rural, which depends on primary product exports (especially oil products).
Since the attainment of independence in 1960 it has experienced ethnic, regional and religious tensions, magnified by the significant disparities in economic, educational and environmental development in the south and the north. These could be partly attributed to the major discovery of oil in the country which affects and is affected by economic and social components. Crude oil discovery has had certain impacts on the Nigeria economy both Positively and adversely.
Although Nigeria makes billions of dollars but as most developing countries this has not transformed the economy of the country. Due to problems of mismanagement, inefficiency, corruption, lack of funds, smuggling, bureaucratic bottlenecks and excessive subsidizing, the supply of crude oil has excessively collapsed. the importance of oil in any given economy cannot be overemphasized as illustrated or effective captured in the words of Dr. Trevor, Byer while delivering a lecture in the 14th international energy orum and the it goes thus’’ I think a Body like this does not need to be convinced that the energy sector is an important part of the Nigerian economy. it produces about 75% government revenue or more 50% of public investment and it earns more than 95% of the foreign exchange that comes into Nigeria…’’ From the above statement it is made clear and more light is shared on the reason why the importance of the oil and gas sector of the Nigeria economy cannot be overemphasized. for the purpose of our discussion however it would not be out of place to define what oil means in the first place .
Oil has been defined as crude petroleum and other hydro carbons regardless of gravity which are produced at the wellhead in liquid forms and the liquid hydro carbons known as distillates or condensates recovered or extracted from gas other than gas produced in association with oil. Oil is a major raw material which has many useful uses hence its importance and place of prominence . among it uses is that it is used as a convenient and effective source of energy . it provides fuel for machineries. t has uses for power generation ,domestic uses ,transportation, it keeps the factories in the industrialized economy working and it’s a source of revenue e. t. c. In the words of Feide in 1986 ’’It is linked with blood, tears and suffering it helps development and progress. it has been sighted as a means of political domination ,economic exploitation and physical domination ”From the foregoing it can be seen that oil has and is still affecting the lives of people all over the world. The destiny of all nations is in fact determined by the results of petroleum industry operation.
To begin with, the question can be asked, what do we mean by the oil and gas industry and what are its components. people usually refer to it as one industry but it is not it is made up of many industries each one having acquired its special characteristics . the more important of these industries are exploration ,production, transportation, Processing, marketing and distribution . it is now customary to distinguish two parts in the oil industry. Namely the downstream and the upstream sector. Exploration and production activities make up the upstream sector . ctivities subsequent to production of crude oil are called downstream operations. This includes refining marketing and distribution. some oil companies choose to operate in one sector only for example exploration and production. they are said to have an upstream interest. Today, the oil industry is in particularly difficult s situation in Nigeria. This hardship has both the international and national dimension. At the global level, with the breakdown of global ideological barriers, opportunities for international oil exploration are available in geographical/ geological areas which we did not fore see a few years ago.
The political and economic opening of high potential area previously closed to western investment is creating immense demands on the sources of private western capital. low oil pricing have also constrained industry funds available for investments in further exploration activities in the industry worldwide, including Nigeria. At the national level the inability of government to raise its quota in the joint venture creation has led to the production sharing contracts.
However we propose to focus on the legal frame work for appropriate funding of the oil industry and this is done within the contractual framework of agreement for oil exploration activities in Nigeria. This contractual arrangements are the production sharing contract, joint ventures, service contracts and its variants. Before all this arrangements, the contractual arrangement before attainment of political independence the contracts gave monopoly solely to the British and the tenure usually lasted for 30 years, investor ownership. However the position was changed when Nigeria joined OPEC after the NNPC was established . owever from 1993 and until recently inadequate government funding was the major constraint to the growth of the industry. There have been many ups and downs I the governments cash call payment performance. The production sharing contract on its own is popular in Nigerian industry. It marks a shift from the joint venture. It governs the understanding between NNPC and the new companies. At present,8 companies operate the production sharing contract. In 1999 the Federal Government promulgated the deep offshore and inland basin production sharing contract.
The decree spells out fiscal incentives for oil and gas prospecting license holders in the deep waters as well as the inland basin and any other PSC contract which the NNPC may into in future . section 2 of the decree is regarding the duration of oil prospecting license under PSC . the decree also covers the determination of petroleum profit tax which is provide for in section 3. determination of investment tax credit and allowance which is provided for in section 4,allocation of royalty, cost and profit oil and payment of royalty and chargeable tax on petroleum operation and periodic review which s provided for in section 10. A lecture presented by prof. Akin Oyebode in the lectures in honour of Prof. G. A Olawoyin(SAN)HELPS TO SHED MORER LIGHT ON the legal perspective or legal issue in the deregulation of the downstream sector of the economy. he said as regards the decay in the Nigerian industry today law is no cure all and law is no medicine. the law is basically about doing things according to rules according to professor twinning. however law has its problem solving potential . ccordingly the task of Nigeria from this quagmire into which it has sunken is one which the law in all sincerity cannot shy away from. In the words of fulleer ‘law is the enterprise of subjecting human conduct to the government rules” The law is adequately suited for the tax of creating amore efficient functional and reliable petroleum sector. it is however important to understand the nature of Nigeria’s unending petroleum crisis. Nigeria is essentially a primary commodity producer and this account for 90% of its foreign exchange earnings.
However there is a primary contradiction in our nation’s economy which Claude Ake has described as a n economy that produces what it does not consume and consumes what it does not produce. Failure to understand Nigeria’s peculiar situation would lead to wrongful analysis and solutions. Nigeria had failed to take the correct steps earlier on in its petroleum production, refining, marketing and distribution both locally and international. if it had we would not be discussing the issues herein. it can be categorically stated that the long queues at the filling stations today was laid down during the years preceding the civil war.
Important decisions such as maintenance of pipelines training and retention of manpower in all level of the industry was neglected hence the problem we are facing today. furthermore the long years of military rule did not help the sector as well as other sectors in the economy . soldiers turned it into a bastion of patronage filthy lucre and graft to the to the detriment of the government. And most contracts were awarded to family and friends in the pretext of meeting the needs of the product. Generally, total neglect and poor maintenance of pipeline networks, different accidents in association with the pipeline bursting. nd some cases of vandalization gave some people opportunity of availing themselves of free products even at the risk of their lives. This in turn destabilized the market and lead to an increase in the oil prices. it’s such an irony that Nigerians have to pay through their nose for petroleum when they are among the largest producer of this product. From the foregoing it is clear and evident that the issue of petroleum is linked with the survival of Nigeria as a nation and if not properly handled might lead to a demise of the Nigerian economy.
There is no need to weave up illusions that Nigeria would be able to weather the storm. There has been legal response over the years to issue pertaining to petroleum over the years which we shall be discussing here. as regards the issue of ownership, note should be taken that it is vested in the federal government in the law. Nigeria followed the practice of the British colonial government. Despite the clamour of the inhabitants for their own control of their resources. The 1999 constitution affirmed this too. even the land use decree had abolished all private ownership of land. he only limitation here that could limit this power was that it was subject to the prescription of the national assembly. the current demand for resource control and self determination calls for a new ground for co habitation among this country’s multi ethnic group and nationality. With particular reference to the constitutions position as regards ownership of petroleum resources located within the territorial zones and exclusive economic zone in the federal government has given rise to so much controversy.
An amendment of the constitution substituting continental shelf for both the territorial sea and the exclusive economic zone would have made matters much explicit. However it would be in accordance with the international law on the subject. The position of the supreme court in OFFSHORE BOUNDARY DELIMITATION CASE, has intensified the argument for resource control. The court in their view merely joined the rank forces to deprive the inhabitants of their God given resources.
The presidents desperate attempts to mollify critics by submitting a bill to the national assembly with a view to abolishing onshore offshore dichotomy in relation to allocation of revenue to oil bearing states, which first spoke of resources within the exclusive economic zone and later 200m isobaths instead of continental shelf As regards oil production unlike other members of OPEC Nigeria is still a passive member it has not been able to fully take charge and control its resources. Its arrangement with other foreign companies has placed it in the position of an observer only interested in rofit and royalties, in fact fears were expressed in certain quarters whether Nigeria was indeed in a position to verify production figures supplied to it by foreign countries. Nigeria also encountered various difficulties with meeting up with the indigenous oil quarter, problems such as downsizing of staff in favour of less qualified foreign expatriates, presently however, the days of peddling oil blocs seems to be ending. When it comes to refining, NNPC has been saddled by the law with the responsibility of purchasing petroleum and its products and by-products, treating, processing, mining and marketing of petroleum.
However, the refineries have turned into financial drainpipes despite expending about 487. 5millon$ over the past seven years as at 2005. They have not been fully functional; hence the country has resorted to importation to keep the economy running. Hence there have been plans to sell the refineries but this again led to serious eyebrow raise. there is also a talk about license to provide oil marketers who wish to set up their own refinery but nothing really substantial has happened . as regards marketing, Nigeria been a member of OPEC must subscribe and to and obey their policies regarding quotas.
From the legal perspective some solution has been given help mitigate the disaster and this entails and conscious harnessing of technological properties of Law in combating the unsavory aspects of the management of the nation’s petroleum resources. One of the first step is to reconfigure the concept of deregulation which is currently been viewed as a cure for all. it should not be embraced in isolation as regards the petroleum sector in particularly. the public should not be exposed to the full blast of unregulated price regime . eregulation would only help if the refineries are in good working condition any other measure taken would end up being counterproductive. Alternative fiscal mechanisms have been advocated to be put in place to blunt or dampen the effect of deregulation and thereby alleviating the lot of the suffering masses. it is was also said that the yearning for resource control by the inhabitants of the oil bearing populace can be addressed by creating an avenue for them to air and voice out their grievance e only thus can the feeling of frustration, neglect, deprivation and annoyance be placated. o enhance exploitation of resources without grievance. However in Nigeria and other developing Nations their participation in the oil sector of their state started rather late. their participation came in the form of modern concessions such as the production sharing contract, the service contract and it s variant and the joint venture contract . this were opposed to the traditional concessions which was granted by the government to the International oil companies . The government granted concessions to this companies over large areas of lands, with exclusive rights exempting relinquishments. hat obtained was the policy of investor ownership. In the year 1971,the NNOC was established this was Nigerian’s first attempt to participate in it s petroleum operations, note however must be taken of the fact that prompted this line of action from the Nigerian government . several factors can be said to be responsible for this. Significantly was the United Nations unanimous declaration in their several articles accepting the right of states to permanent sovereignty over the states resources.
These resolutions also provided for legal protection for most countries who wished to renegade on the contracts granting the traditional concessions . another influencing factor was that increased government participation in its petroleum industry was among Nigeria’s developmental plan. State participation in the natural resource was condition precedent to joining the organization of petroleum exporting countries. the Nigeria government was no longer sure of where the loyalty of the I O C lied especially during the civil war. Hence the need for government’s own corporation for the state. he NNOC was not really functional and its managers had not been appointed. it was later on merged with the ministry of petroleum forming the NNPC, the NNOC as it was first called was established 1971. it was the established state agency with the power to engage in all phases of the oil industry from exploration to marketing . as a result of the merger the NNPC was formed which still subsists till today. the Nigeria government uses the NNPC as a medium for participating ,partake in and in the long run take-charge of operations of oil in Nigeria.
The NNPC when it was established was vested all assets, funds, resources, and other movable and immovable property which before its establishment were vested in the ministry of petroleum. NNPC assumed these rights on behalf of the government. Provisions were made in the act to vest the NNPC with the assets of the dissolved NNOC. The nature of its duties included engaging in all aspects of petroleum operations in Nigeria. This ranges from operational functions to those commercial function and includes duties supervisory in nature or regulatory functions in the Nigerian oil industry.
The NNPC carries out its function in two ways. Either by engaging directly by engaging in wholly owned petroleum operations or indirectly through the joint venture operations with the foreign oil companies which it had no share of ownership. The NNPC as at today has evolved in some aspects, instead of the centralized structure which obtained before we now have the corporate head office with three functional divisions and twelve subsidiary companies charged with the execution of the corporation’s business. his reorganization was reorganized to place the corporation in firm position to compete favorably in the international business environment . this decentralized state gained the support of the group managing director of the NNPC ,Adams remarked, the objective of the reorganization is to reduce rigid central control and allow subsidiaries the flexibility necessary to optimize their business and operate commercially in the best interest of the corporate body . ’’ The petroleum industry is usually divided into three major components: Upstream, midstream and downstream.
Midstream operations are usually included in the downstream category. The downstream oil sector is a term commonly used to refer to the refining of crude oil, and the selling and distribution of natural gas and products derived from crude oil. Such products include liquefied petroleum gas (LPG), gasoline or petrol, jetfuel, dieseloil, other fuel oils, asphalt and petroleum coke. The downstream sector includes petrochemical plants, petroleum product distribution, retail outlets and natural gas distribution companies.
The downstream industry touches consumers through thousands of products such as petrol, diesel, jet fuel, heating oil, asphalt, lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides,pharmaceuticals, natural gas and propane Crude oil is a mixture of many varieties of hydrocarbons, and may contain sulphurous compounds. The refining process converts most of that sulphur into hydrogen_sulphide”sulphide however we shall be limiting ourselves to the downstream sector in our discussion.
The first refinery was built in a place presently known as the south- south region. it became operational 1965 with the capacity of over 38000 barrels per day. After then three more refineries have been built to cater for the public’s domestic use of petroleum. however the refineries could not meet with the society’s demand hence the Nigeria govt. borrowed money in the 1980’s and 1990’s from the international financial institution At present, Nigeria has four refineries, with a combined installed refining capacity of 445,000 barrels per day (bpd).
These four refineries are: The first Port Harcourt Refinery was commissioned in 1965 with an installed capacity of 35,000 bpd and later expanded to 60,000 bpd. The Warri Refinery was commissioned in 1978 with an installed refining capacity 100,000 bpd, and upgraded to 125,000 bpd in 1986. The Kaduna Refinery was commissioned in 1980 with an installed refining capacity of 100,000 bpd, and upgraded to 110,000 bpd in 1986. The second Port Harcourt Refinery was commissioned in1989 with 150,000 bpd processing capacity, and designed to fulfil the dual role of supplying the domestic market and exporting its surplus.
The combined capacities of these refineries exceed the domestic consumption of refined products, chief of which is premium motor spirit (gasoline), whose demand is estimated at 33 million liters daily. The refineries are however, operating far below their installed capacities, as they were more or less abandoned during the military era, skipping the routine and mandatory turnaround maintenance that made products importation inevitable. Importation notwithstanding, there have been persistent product shortages that gave strength to the argument for deregulation of the downstream of the downstream sector. The low capacity and utilization of igeria’s state owned refineriees and petro chemical plants in Kaduna,Warri, Porthaccourt, is in a sorry state of despair, neglect and repeated vandalization of the state ran the petroleum product pipeline and oil movement infrastructure nationwide, the collateral damage of institutionalized corruption with the frightening emergence of a local nouveau riche mafia that controls coordinates crude oil petroleum pipeline sabotage and theft(illegal bunkering),the insatiable military task force operatives who aid diversions of crude oil in large scale or across the border all of which are among the root causes of the problems of fuel crises in the Nigerian economy. this reasons shows the need for a reform in the energy sector is the magnet of the economy and financial losses that this sector generates. this losses where estimated at 4. billion dollars per year by the united nations development programme /world bank energy sector management assistance programme in July 1993 in its report entitled Nigeria; issues and options in the energy sector. the breakdown where 100million in power,440 million of economic losses in petroleum power sector,805 million of economic losses in the petroleum sector ,2,845 million dollars as financial losses in the petroleum sector . it should be noted that 4. 2 billion dollars is equivalent to 345 billion naira and this money could easily be invested in another sector of the economy such as education. And as regards the power sector, it does not involve the loss as a result of subsidy itself. oses that arises from under utilization of the Nigerians refinery amount to 250 milli0n dollars because they are importing refined product instead of exporting them. 50 million dollars accrue to excess fuel used by this refineries and 40 million as the extra cost for importing refined product,60 million excesses used as a result of the pipeline’s inadequacy and other loss which has not been calculated. Finally we are told that the largest losses in the petroleum industry are from smuggling of refined product which is 210 million dollars, losses in distribution 710 million dollars , subsidy to domestic consumption is 1,920 dollars. These were estimates before 1994 increase in fuel prices.
Hence there arises a need to reform the sector but the government is biased with the problem of funding and the private sector comes in at this instance. An article was written in the vanguard by Yemie Adeoye & Daniel Alfred and they said ,Following the acute petrol scarcity currently rocking the nation, the Federal Government has promised that all refineries in the country would be at optimal performance by the end of this month. This was disclosed by the Group Executive Director, in Refinery and Petrochemicals, A the Nigerian National Petroleum Corporation, NNPC, Mr Austin Oniwon, during the stakeholders forum to find a lasting solution to the crises in the downstream sub-sector of the petroleum industry.
According to Oniwon, the refineries are currently in position to operate fully as their Turn Around Maintenance, TAM, had been carried out. Further reports emanating from the forum indicated that the Federal Government may use vessels to complement the pipelines which are currently in a state of disrepair as a result of constant vandalisation. Government to delay full deregulation However, the Minister of Petroleum Resources, Dr. Rilwanu Lukman noted that the full deregulation of the downstream sector, though highly appreciated as a panacea to the myriads of problems bedevilling the sub-sector may not be implemented anytime soon as there are need to put a lot of measures in place to be able to act in a deregulated system once it kicks off.
According to him, government would not want to give a date that could such not be implemented and as would rather concentrate on putting those measures in place. I would like to take a look at the issue of refineries. It is public knowledge that successive governments had granted refining licenses to many companies, with the hope of increasing our domestic production of refined products. But to this day no single refinery has taken off. Our analysis has led us to the conclusion that the enabling environment for the establishment of refineries does not exists in the country today. We have identified what constitutes the enabling environment and these have been incorporated in the petroleum industry bill.
Oniwon further stated that “the directorate was already putting finishing touch to the idea of using vessels and sea crafts to convey crude oil from production rigs and platforms nearest to the refineries. Oniwon said the idea was to reduce the dependence on pipelines in the movement of crude to refineries due to incessant attacks. “For so long the vital Chanomi Creek pipeline conveying crude from Escravos to Warri and Kaduna Refineries has been the butt of militant attacks aimed at crippling the fuel supply situation in the country, he said Oniwon was upbeat that the plan which was on the verge of leaving the drawing board would go a long way in solving the problem of providing stock feed to the refineries. Barkindo calls for solution to fuel scarcity
Declaring the forum, which was meant to find a concrete solution to the challenges facing the downstream sector of the oil and gas industry open, Group Managing Director of the Corporation, Dr Mohammed Sanusi Barkindo, charged the management of the Pipelines and Product Marketing Company, PPMC, and the refineries in the country to come up with practical solutions to end the perennial fuel supply and distribution challenge. Barkindo stated that the NNPC as a national oil company must take the lead to address this challenge in a holistic manner. “We cannot continue to sing the same song of excuses. This is embarrassing not only to us as managers of the industry but to all other Nigerians as well. This is a practical forum where we are only interested in practical and innovative solutions to the challenge we face, he said.
He said it was in recognition of the fact that the NNPC does not have a monopoly to the solutions that it was willing to carry all other stakeholders along in its drive to find a lasting antidote to the fuel problem. “In going into a deregulated environment the downstream sector must get its act together to face these issues. Deregulation itself is not likely to solve all these challenges over night. Therefore ,the sector must get together in this type of forum in an open and frank manner to present their own perspective on the current state of the industry and the way forward, Barkindo said. By Anthony Uche Nigerian refineries have always been impacted by operational problems, the inability of previous Turn Around Maintenance (TAM) operations over the years, have kept the four refineries in the country perennially operating below installed capacity.
Considering the high demand for petroleum products in the country, their availability is crucial. The estimated daily demand for petroleum products in Nigeria today is 30 million litres of petrol (PMS), 10 million litres of kerosene (DPK), 18 million litres of diesel (AGO), and 780 metric tons (1. 4 million litres) of cooking gas (LPG), and the estimated amount of crude oil required daily for domestic refining, that would satisfy the demand for petroleum products in Nigeria adequately, should be about 530,000 barrels per day (bbl/d). This is some 85,000 bbl/d more than the combined refining capacities of all the state-owned refineries located in Warri, Port Harcourt, and Kaduna.
The four refineries have combined installed capacity of 445,000 bpd and have never reached full production due to sabotage and operational failures. In 2010, a meager amount of 80,757 metric tones, MT, of petroleum products were refined by all the refineries. These included 53,223. 4 MT of automotive gas oil, AGO, 7,567 MT of liquefied petroleum gas, LPG, and 19,967 MT of premium motor spirit, PMS. Amazingly, 8. 1 million MT of petroleum products were imported into the country in the same year. With crude oil exports currently above 2 million bpd, due to increased production, as a result of the relative peace being enjoyed in the Niger Delta region, the country ironically has to rely on imports of refined products for 85 percent of its fuel needs, mainly from European suppliers.
Nigeria, which is Africa’s largest crude oil exporter and also the 6th largest in the world, spent about N1. 15 trillion to import an estimated 8. 1 million metric tons (MT) of petroleum products in 2010 alone and will spend about N388. 11bn to import petrol, in the first quarter of this year. Ageing refining plants, dilapidated infrastructure, such as pipelines linking the plants and a lack of investment have held back the country’s refining industry for years, while militant attacks have worsened the situation. In December 2010, a series of militant attacks to pipelines connected to the refineries forced the Nigerian National Petroleum Corporation, NNPC, to shut down all of them.
Also in November, 2010, Kaduna refinery which runs on crude oil from Chevron’s Escravos oil terminal, and has capacity of 110,000 bpd, was shut down after the crude oil pipeline feeding the facility was damaged by militants operating from Delta state. But the refineries are back on track, as information emanating from NNPC indicates, Group Managing Director, NNPC, Austen Oniwon, said in Abuja that that the NNPC was determined to make the refineries work at full capacity to reduce importation of petroleum products. The NNPC chief stated that the current stability in the supply of products could not be sustained in the long term, hence the need to rejuvenate local refineries. The refineries must therefore work on a continuous basis, thus reducing imports significantly. In pursuance of this, the management is currently involved in discussions with the original EPC contractors with a view to carrying out rehabilitation works aimed at restoring the refineries to their original design capacities,” he said. Oniwon said that the initiative would lead to the desirable result of improving on the refineries’ contribution to meeting domestic demand. Also, the Spokesman of NNPC, Levi Ajuonuma, noted that production currently fluctuates between 65-75 percent. He said the 125,000 bpd Warri refinery which was shut down temporarily is back on stream and has commenced the production of kerosene. Warri is up to 75 percent and the rest are between 60 and 70 percent” Levi Ajuonuma noted. “In another couple of weeks we will be ramping up production. The key is pipeline security. ” He added. When asked if security had been bolstered, Ajuonuma said “yes it has”. This is coming on the heels of the success of the Joint Task Force, JTF, operations in curtailing the activities of vandals in the region and also the ongoing amnesty programme. Plans are on the way for additional 750,000 bpd to be added to the existing refining capacity of 445,000 bpd. China State Construction Engineering Corporation Ltd intends to build three new refineries in Kogi, Bayelsa, and Lagos state.
Already, the Memorandum of Understanding, MoU, has been signed and the Chinese have inspected the proposed sites, as a sign of their commitment to the project. The deal is said to be worth $23 billion. One just hopes the projects materialize, considering the fact that the last refinery, the Port Harcourt refinery, was built by the Babangida administration over twenty years ago. Nigeria’s state-owned refineries all have very poor maintenance histories, are technically inefficient, and are unreliable for uninterrupted domestic production of petroleum products, even at the very best of times. Liberalization and total deregulation of the downstream will create the necessary environment for attracting investors into the refining sector.
With her huge hydrocarbon resources, there is no reason Nigeria should not be able to refine petroleum to meet local demand and for export to the regional and international markets as expected opinion varies in the public as regards deregulation. However deregulation is seen as desirable in freeing the government of its concurrent control and its involvement in the current business of refining, importation and distribution of petroleum products in the Nigerian market. in some opinions deregulation should be implemented in phases The issue of deregulation on the other hand of the downstream oil sector cannot be properly analyzed without having an idea or working definition as to what deregulation encompasses.
Deregulation is the removal or simplification of the governments rule and regulation that constrains the operation of market forces. it is different from liberalization where more player enter the market ,but continues to regulate and guarantee the consumer rights and maximum an minimum prices. hence deregulation can also mean to remove government control from an industry in this context . over the years there has been different arguments in favor of and against deregulation of the Nigerian downstream sector . according to Muyiwa Sanda, the greatest justification for deregulation is its potential to provide additional funds for the enhanced development and sustenance of the oil and gas industry. here are other justifications which bothers on the on the potential consequence of such deregulation in the oil sector which will expand productivity . competition in the oil sector is said to likely have the effect of bringing down oil prices and permanently making petroleum scarcity a thing of the past. Since importation of both crude and refined oil will be done by this private marketers and generally appropriate pricing in the sector to the benefit of all . this leads us to wonder the reason why there has been protest against deregulation in the downstream sector? The Nigerian petroleum market as it is today is plagued by several intractable problems which can be traced to the government’s monopoly of petroleum refining and distribution.
This problems cover areas including exploration and production activities, gas development and utilization and petroleum pricing and supply activities. the problem of supply can be linked to the four refineries ,Its distribution segment consisting of pipeline, depots and network and the retail components consisting of marketing outlets . a situation whereby the government allows private investors to come in and run this refineries would definitely stimulate the others to work competitively which is better for the economy. Such a competitive and level playing grounds for refining petroleum is long overdue as alternate means for forcing the operators to adopt fair and competitive pricing or appropriate pricing of the products.
However there are challenges that have been encountered over the appropriate pricing of petroleum in a liberalized economy. note must be taken of the difference between a liberalized economy and a deregulated one. in a liberalized market while having a fewer and simple regulations ,could also have regulations to increase efficiency and protect consumer’s right . however this terms are used inter changeably. Mr. Avuru, a petroleum engineer and general manager of allied energy Nigeria limited said that euphemism is for throwing the prices of products high enough to make importation profitable for ever y size and shape of fly by night traders . t has been said that the sure path to additional funding in the oil and gas industry is through deregulation conceptualised as apropriate pricing . an d the way to reach such a goal is through deregulation or removal of frigid regulation of the sub sector as observed by BIRAN ANDERSON ;The world around us is changing rapidly. Liberalization, globalization and technology are three powerful, forces at the global level shaping the future. Societies are moving away from a highly regulated environment. The issue of ownership; participation control and financial risk has to be viewed in relation to the potential for making easier availability of funds . eeded reforms of financial arrangements cannot be completely separated from arrangements to bring in private sector initiatives and the kinds of competition that will bring appropriate pricing. There are diminishing returns as can be seen from Nigeria’s investment in her 950kilometres pipelines which are detiorating as a result of its widespread leakages and its low safety standard. Surely it would not be ad visible for the government to continue this way. it has therefore been submitted that the creation of a competitive setting ,including the involvement of both the local and foreign pipelines transportation companies will serve to enhance the revenue generation capacity of this downstream sub sector . his would make room for companies whose broad objectives are business success and maximum return for their investments . The history of ‘appropriate pricing’ of petroleum products in Nigeria can be traced to 1973 when petroleum motor spirit (PMS), diesel (AGO) and kerosene (DKP) sold for 95 kobo, 88 kobo and 18 kobo per liter, respectively. By 1986, the same products sold for N3. 95 (or 395 kobo), N2. 95 and N1. 05 per liter, respectively. Barely a year after the inception of the country’s Fourth Republic, precisely June 2000, the Olusegun Obasanjo-led administration decided to increase the prices of petroleum products by about 50 percent.
The breakdown is as follows: PMS (N16–N26 per liter), AGO (N14–N24 per liter) and DPK (N12–N22 per liter). After much public outcry and negotiation between labor union leaders and the government, the prices were brought down to N22, N21 and N17, respectively. On January 1, 2002, the prices were upwardly reviewed again. After the usual outcry and negotiation, the prices were pegged at N26 per liter for both PMS and AGO and N24 for DKP. By the middle of 2004, speculations were rife that the government proposed to review the prices of petroleum products yet again. The prices of petroleum products went up by up to five times during the eight years of the Olusegun Obasanjo presidency.
Each time this happened, the Nigerian government, represented by the president and other public officers, employed several discourse strategies at their disposal to persuade the Nigerian public that it meant well. The people, on the other hand, usually challenged the position of the government through media publications and public demonstrations. A few Nigerians especially commercial vehicle operators continued to buy, albeit grudgingly, at the new price with the expectation that the ongoing campaign against the new price would make the government reverse its decision. The government allowed the debate to drag on for a while until most members of the public got used to the new price.
Then peace and quiet returned and it would seem that the government had won the ‘war’. This polarization between the government and the people on what has been described in Nigerian political discourse as ‘appropriate pricing’ of petroleum products was visible in the media on all the five occasions when the pump prices of petroleum products were upwardly reviewed between 1999 and 2004. At the time of writing this paper (July 2008), the Nigerian authorities had hinted that petroleum prices would be upwardly reviewed in January 2009. This sparked off another round of debate in the media about the wisdom and fairness of the removal of petroleum subsidy in the country.
The data and analysis for this study were collected from purposively selected newspaper reports, articles and editorials in four Nigerian dailies at the height of the debate (‘war’) on appropriate pricing of petroleum between October and November 2004. In other words, newspaper reports of debates on the pricing of petroleum products to the Nigerian public were gathered and portions that were considered relevant to the objectives of the paper were extracted for analysis. The newspapers, which are private, included The Guardian, The Comet, New Age and The Daily Independent. We observed, earlier in this paper, that language use tends to reflect and reinforce a particular perspective; that is, an ideology.
Ideology is understood to refer to “the taken-for-granted assumptions, beliefs and value-systems which are shared collectively by a social group” (Simpson 1993: 3, cited in Thomas et al. 2004: 27). In the data analysis presented in this section, we tried to show how the various viewpoints in the debate on ‘appropriate pricing’ of petroleum products are linguistically encoded. In doing this, we looked specifically at the ideological context, some lexico-grammatical choices and some significant pragmatic strategies employed by the participants. Since controversial ideological issues that centre on equity, fundamental human rights, fairness and living standards re at stake, the roles played by word choice to project such ideologies and perspectives in the discourse are identified and described. Significant lexical features in the paper include lexical choices, collocations and repetitions. Also, significant in the data is the figurative use of language exemplified by metaphor and Marxist related rhetoric. Cohn (1987, cited in Thomas et al. : ibid. ) holds that “the angle of telling” may be such that a worldview may be skewed against the victim. Apart from differences in representation being signalled by particular features of grammar, structural choices within one language do also signify differences in representation.
In this ‘war’/debate, we observe a number of strategies, which include the use of polarizing strategies and structures, such as scape-goating, stereotyping, use of metaphors (imagery), manipulation of moral concepts, emphasis on ideology over information and so on. The observation being made here is that the combination of sign and structural choices is integral to the creation of certain representations. As regards The Case for ‘Appropriate Pricing’ of Petroleum Products, the texts from government, politicians in the ruling party and people who sympathize with their position appear to use language to steer people’s thoughts and beliefs as to the ‘facts’ of under-pricing and the benefits of fixing ‘appropriate prices’ for petroleum products in the country.
For instance, instead of using the stark expressions such as “removal of petroleum subsidy” and the inevitable corollary of “job layoffs” or “downsizing”, the government opts for their euphemistic alternatives, “appropriate pricing” and “right sizing”, respectively. Such lexical choices are expected to make the public more receptive to the reforms being introduced by the government. the paragraphs presents the ‘angles of telling employed by the discourse participants who favour the removal of petroleum subsidy. it is further asserted that on a closer scrutiny to the downstream sector it becomes obvious that the goal of generating adequate funding and satisfaction for the need of oil and gas satisfies the policy of deregulation in the first place. t is said that even instances where by petroleum is been smuggled to other west African nations would be terminated . The 1998 statistics has been showed to prove that individual marketers about two thousand were ranked no 1 in retailing. And subsequently in 1999 and 2000. this buttress the point that deregulation will make fuel scarcity a thing of the past. There would be an end to endless queues at the filling stations. as well as it provides additional revenue to the government . the only issue would be the appropriate and timely enlightenment of the people to avoid unnecessary apprehensions on the possible adverse consequences of deregulation on the people, which in the long run would become enhanced.
Senator Abubakar Bukola Saraki expressed his conviction that total deregulation of the downstream sector of the petroleum industry and provision of palliative measures will curb fraudulent activities that currently accompany fuel subsidy in the country. Saraki, the immediate past governor of Kwara state, told newsmen yesterday in Ilorin that: “I see the subsidy as the biggest fraud in this country. That money can better be used to impact positively on the lives of majority of Nigerians. ” “Presently, the country spends about $4billion (N600billion) yearly on fuel subsidy. That means if shared among Nigerians everyone will have N4million per year.
Fuel subsidy is supposed to be a palliative measure to help Nigerians, but it has not served that purpose because most of the money ends in the pockets of few individuals. ” He said: “It will be worst this year as kerosene is being subsidized; it will be in the region of $6billion. It is almost the country’s capital expenditure for that year. ” Another school of thought believe that the Nigerian petroleum industry must not be liberalized or deregulated or privatized completely for whatever reason. They believe in the status quo and may be with some minor adjustments , essentially this is the implied position of the Nigerian labor congress. However some insists complete deregulation. they believe in complete wholesale privatization of all state owned petroleum industry . or such Nigerians ,the survival of the industry in the 21st century is based on the bench mark of globalization and not nationalization would dictate the tempo of the new world order in the international petroleum market. The enlightenment campaign included issues such as the burden of subsidies on the national treasury ,the strain of financing Nigerian’s own petroleum business, issues of smuggling of petroleum products, licensing of private refineries and the general benefit of deregulation, including the need to break the monopoly of NNPC…. reactions to this government sponsored enlightenment ranged from outright rejection to cynical disinterest through conscious empathy to dogmatic assertions the ultimate inevitability of deregulation of the downstream SECTOR. when there is deregulation prices would be determined by the market forces. nd the workers fear that if allowed petrol would cost as much as twice the amount per litre and this inevitably would affect other products which are in one way or the other linked to petroleum such as transportation for instance. This present controversy was generated by the demands of the state government for the workers to be paid eighteen thousand naira as minimum wage. Since their counterpart in the federal service with the same qualifications where been paid more and they both buy from the same market and a lower salary would amount to gross injustice for the state civil servants. the governors complained of this been impossible as a result of the meagre money they had in the state accounts.
Others also said the living standard in each state differs so the salaries would be different in different state and in other to achieve this, federal government should abolish the fuel subsidy, so more money would come into the federation’s account. they also wanted to review the allocation formula in favor of the state as opposed to it been in favor of the federal government which we have now. they proposed the federal government takes 52%,the state 30% and the local government takes 18%. however the president gave no assurance that fuel subsidy would be abolished at the governors meeting with him. but his utterance at another forum suggested he was in support of the governors suggestion.
He warned Nigerians to be prepared for some tough measures that would be introduced and this was at the inauguration of the may and barker pharm centre in Otta, Ogun state last week as at the time the article was written. This utterances and the position of the governors has led to great fury among the labor unions and they are hell bent on preventing this from happening. They do this as a result of the consequences of such an at which would lead to increase in the pump prices of products. Union leaders are also angry at the fact that governments are linking the issue o increment of salary with deregulation; they insist that deregulation and withdrawing fuel subsidy is guaranteed to plunge the nation into crises.
It is been said that there is no connection between the minimum wage implement and deregulation or withdrawal of subsidy. That the former has been signed into law and hence been implemented. It is also argued that the withdrawal of oil subsidy would only enrich the government and impoverish the masses because corruption is very prevalent in the Nigerian society. Other deregulated products are not within the reach of Nigerians and yet government is contemplating full deregulation and Elijah Okougbo ,the general secretary of national union of petroleum and natural gas workers posited that it would not work in a country like Nigeria as stated above because of the insincerity on the part of the government. e further went on to show how the government lead the mass to believe they were going to build the refineries and put them in good working shape but they have done nothing. And said that situation would be worse if the government carries out its wish, it would be only the elite who would fuel their cars while the masses would pay through their nose to be able to move around. This in turn would deepen poverty in the country. Most importantly is the cogent reason and raised by the labor union. They say the government has not introduced measures to cushion the effects this policy would have on the people and this in fact is the true position of things. There is an abject neglect of social infrastructure and social amenities in the country.
The poor state of roads, water, electricity, health institution does not encourage the average Nigerian to support any move by the government to remove subsidy which they believe is the only thing they profit from the government inept management of the national affairs. Another group called the arewa citizen action for change in the north goes against removal of subsidy and appeals to the federal government to shun the proposition of the government which is regarded as anti masses and it employs the government to stick with the masses. Naftura Sheriff, the national coordinator of the group warns government of the dire consequences of should the president heed the call of the governors.
Paul Adefarasin, founder of the house on the rock church says although he is not in support of the huge sums of money been used to subsidize the government can channel such funds in the encouragement of private refineries and says if government had done that in the past the issues it is facing now would have been a thing of the past. he is unhappy at the state of Nigeria saying at 50 yrs Nigeria cannot boast of a functional refinery and also warns that there could be a major crises in this country if fuel subsidies where removed . he says inflation would come in and of course the labor union might decide to fight this. Another divergent opinion by Tam David west a former petroleum minister, he says that there has been nothing like subsidization and the government is only using deregulation as a fraud. He said they were the same people who sabotaged the oil industry and the refineries to justify fuel importation. e says that the money been used for importation is enough to put the refineries in working condition to produce 10,000 barrels per day and it would be enough for domestic use but the government deliberately refuse to do this because it is in their interest to continue importation of petroleum. He condemned the governors suggestion of removal of fuel subsidy as a condition for paying minimum wages and insisting that if they stopped misappropriation of funds they could meet up with the demands been clamored for. He argued further that the governor saying they could not pay such amount was an irresponsible thing to say on the part of the governors.
Sam Aluko also buttresses Tam David west’s point that when he was in the government he was aware of the fact that the importers would never allow the refinery to work because of the huge amount of money they are making . He says there has been no fuel subsidy in the real sense but instead oil consumers are paying taxes to the countries in America, Europe and the middle east. Importation of this oil includes 60%of taxes of their cost of oil there. He therefore insisted that it is the Nigerian consumers that are subsidizing the countries supplying us fuel. Peter Akpatason, president national union of petroleum and natural gas Workers said the cartel in the industry will manipulate and frustrate the market forces itself in such a way that the prices would be under their whims and caprices and if such is allowed deregulation will not work.
Babatunde Ogun, a senior staff association of Nigeria said government should not deregulate the sector unless the four refineries are working at optimum capacity. With this in place a higher percentage of fuel consumed in the country would be produced locally. since the era of former president Olusegun Obasanjo who canvassed the need for the deregulation of downstream sector of the oil industry to that of the late president Umar Musa Yar Adua ,the argument for deregulation has always been the same. The government want Nigerians to accept the idea because it will break the monopoly in the sector and allow inflow of resources into the sector which will in turn allow the government to use the money elsewhere and many other benefits that comes with it.
But notwithstanding these arguments to justify the need for deregulation, the major argument is that subsidy constitutes huge financial and fiscal burden for the federal government. Chief Olusegun Obasanjo, Incumbent Nigerian President (The Comet on Wednesday, October, 13, 2004. As a former President, I think the people have to understand what the nation is going through because I know it is not easy to go through this as we embark on a lot of reforms right now which are in process. You people castigated me during my own time as President of this nation over the Structural Adjustment Programme. But this deregulation is unnegotiable and I think the government should remain steadfast on the issue of reforms.
General Ibrahim Babangida, former Nigerian Military President (The Comet on Monday, October 11, 2004) Nigeria’s incumbent president resorts to rational argument supported with the jargon of international public finance, exemplified by realistic solution and debt overhang, to show that the government’s approach to the problem is not only rational but scientific. Underlying this presentation is the implication that the reforms will usher in a more conducive economic platform for the private sector, which will be advantageous for the country and its people. a former military president throws his weight behind the president, who incidentally is a retired General like him. The former military head of state employs persuasion based on privileged information he possesses (as a former Nigerian head of state) on facts about the nation’s economy and his support of the economic reforms being undertaken by the government.
His reminder of the fact that his past government was castigated over the structural adjustment programme (SAP) shows that unless reforms are allowed to be carried out, there would not be a positive turn-around of the nation’s economy. His impatience with the ongoing public debate can be seen from the way he describes deregulation as ‘unnegotiable’. Such disdain for democratic processes by military leaders is common with Nigerian leaders with military background. There are also two public opinion of leaders who lend their support to the government’s reform agenda. The reforms are necessary. He [Obasanjo] said if we don’t act, who would act? If we don’t do this, who will do it?
Now it behooves a leader, who has a lot of goodies in stock for the people to embark on reforms, a courageous leader should embark on reforms. [… ] Even during the time of the Israelites, when they were taken out of Egypt, you saw how they were reacting, that if you brought us here to come and suffer better take us back to Egypt [… ] like the Israelites of the Old Testament, Nigerians have no patience. Okeaga Ogada, a former Attorney General and Justice Commissioner (New Age on Thursday, November 4, 2004) Government decided to remove subsidy on the various petroleum products and free the downstream sector of that industry from regulation in order to allow many players in it.
The almost instantaneous result is that it became more profitable to engage in petroleum products marketing stimulated more supply to the advantage of the consumers. The truth of the matter is that Nigerians can now see and can easily buy petrol, diesel and kerosene for their industrial use. Ejike Nwosu (The Comet on Monday, October 11, 2004) There is also a compelling presentation by a member of the public who believes in reforms. The text opens with a terse declaration, “The reforms are necessary”. This is followed by two parallel complex interrogative sentences which serve the psychological purpose of making the reading public to search their conscience.
He uses positive lexical items such as courageous and goodies to describe the president and his good intentions for his people. He finally berates the Nigerian public by insinuating that they are ignorant and impatient like the biblical Israelites, who resist progress because of a temporary setback. The writer makes the Nigerian public to salivate, so to speak, by a tantalizing description of the future benefits of reforms when the meal is done. The writer makes positive prediction that the new policy will bring about many benefits, which include more employment (many players), wealth (more profitable), an end to long queues (more supply) and end scarcity of petroleum products (Nigerians can now see and can easily buy).
It can be further deduced from the text that the writer views the public resistance of the removal of petroleum subsidy as unwise and self-destructive. No matter how brilliant the idea of deregulation, stoppage of subsidy there exist a divergent opinion with equally cogent views which we shall be seeing briefly. As regards the issue of the stoppage of fuel subsidy, the public are not happy with it and war has even been threatened by angry workers employing the state to change it s stand on the matter in order to avoid war. This has been a controversial issue in Nigeria for a while now. More than 60 percent of Nigeria s fuel is imported and only 40 percent is produced. he government says it spends about 680 million a year on subsidy and the government say always complained that d burdens is too much and it wants to end it, but every attempt to do this by the government has always led to stiff resistance by the workers. The difference between the cost at which imported fuel is purchased abroad and the cost at which it is sold is usually borne by the government. This is what has become popularly known as fuel subsidy. In spite of the numerous clamor for government to rehabilitate their refineries, some advocate for more to be built and in response government officials have always maintained that it would be better for government to allow private investors build refineries.
OIL Pricing has become another important issue and in other to have a clear perspective of this problem the acceptable principles that determine prices should be reviewed . Energy oil pricing is too important to be left in the hands of the violent swing in the demand and supply . in this guided prices deregulated prices should rule the prices and they can also respond to other market factors such as inflation and exchange rate. in developing energy pricing policies attention is placed on prices that reflect the opportunity cost of energy in the alternative market. Prices that reflects the long run energy replacement costs. Revenue flows to energy supply agencies to enable them guarantee supply in the future . promotion of the use of energy type that is more abundant.
Inclusion of depletion allowance to a type of energy’s price that is non renewable and the provision for partial cost recovery for outlays on social and economic infrastructures that are subject to detioration. when this principles are not applied it would lead to unsustainable level of petroleum product import, unnecessary expansion of refinery capacities and wasteful investments in new refineries, under utilization of relatively cheap and abundant energy resources. Implicit government subsidies resulting to revenue shortfalls and budget deficit and lastly accelerated infrastructure depreciation due to reckless use. The pricing of petroleum product are derived from crude oil prices however this may not always be the case any way.
Reasons such as socio political to time lag between crude oil acquisitions, processing to distribution. Appropriate pricing must imply appropriate allocation revenue to all the major participant. when pms pump price was 70 kobo per litre NNPC revenue at the depot was 4. 6 billion naira as a against the cost of producing crude oil, refining transportation and storage of product which amount to 21. 26billion thus the question is often ask as to why subsidy is always measured in terms of price. to answer it reference must be made to some of the energy pricing principles enumerated above, particularly the one that emphasis the realization of economic opportunity in alternative market.
The economic value of a barrel of crude oil is what it fetches in a competitive world market. To consume that barrel at home is to forgo the opportunity to earn the highest price the world can pay for that crude oil. One must therefore, add a depilation allowance to the crude oil price, the net effect being to fully replace3,in economic terms, the barrel of oil taken out of the ground. In relation to the above, it is not accurate to assess the level of subsidy in terms of crude oil production cost only which today can be about 6. 5$ per barrel (536Naira) which on the average covers technical cost of production (after production 4. 2$ per barrel).
In addition, crude oil costs is not the only cost incurred in supply and distribution of petroleum products, other costs include refining, storage, transportation and distribution. All these must be taken together in order to adequately address the question of appropriate pricing. In considering petroleum product price the cost of crude oil plays a major role and its cost per barrel is N374. However, another directive pegged products price and later directed that payment be made based on stipulated products. Accordingly rather than pay N374 per barrel of crude oil and sell the product and utilize the revenue as we desires, we are required to retain 17ok per litre of pms. where the bulk of revenue realized goes to government and the PTF.
There is also a believe that the price associated with various products, especially pms is adequate for the main time; however, it is thought that the allocation formula for the revenue formula derived there from should be reviewed top ensure continuous production and distribution of the product. Appropriate pricing must also imply appropriate allocation of revenues to the entire major participants. It has further been discovered that Nigeria pays more than its neighboring countries in the west and oil producing nations as well. Some analyst