ORIGIN
OF NIGERIA OIL INDUSTRY
The search for oil deposits started in Nigeria in 1908
with Shell Darcy drilled the first well in 1938 (Aigbedion, 2004, Anyanwu et
a!; 1997). In 1955, Mobil Exploration Incorporated received concession over the
whole of the former northern region in Nigeria where the company carried out
relevant geological survey. It also drilled some wells in western Nigeria
before abandoning its concession in 1961.
Ezigbo (2008), Shell Petroleum discovered oil in
commercial quantity in Nigeria in 1956 and began production of the commodity
immediately. Apart from the initial discovery of oil at Oloibirl in the Niger
Delta, further discoveries at Afam and Bomu confirmed Nigeria’s status as a
major oil producing nation.
Obadan (1998), the petroleum industry grows rapidly
from 1960 and 1970 and has replaced agriculture which was the cornerstone of
the nation’s economy. The manifestation of the Nigerian oil industry includes one
of the world’s largest proven reserves and the production in excess of 2
billion barrels (Van, 2001).At the top of the oil industry is the federal
government-owned parastatals, Nigeria National Petroleum Corporation (NNPC)
that operates a faint venture agreement with other foreign multinational oil
companies in Nigeria to produce both the nation’s crude oil and gas. The four
refineries was sold in the year 2007 due to the privatization policy and
Nigeria is today importing refined oil from neighboring oil producing countries
at a higher rate (Eke, 2011).
NIGERIA ECONOMY AND THE OIL INDUSTRY
The oil industry has assumed a positive position in
the Nigerian economy accounting for 8 of the nations Gross Domestic product
(GDP) in recent times. ( Dappa, 2010). The industry has also pushed Nigeria to
the fore front of the global industry making the country the 6 largest
exporting and 7 largest producer of oil in the world. Revenue from the oil
sector comprising export earning, petroleum profit tax and royalties has grown
steadily over the years. Between 1970 and 2008, earning from oil rose from
75.3% to a peak of89.1% of the total federally generated revenue (CBN, 2010).
Amadi (2010), International Monetary Fund (IM F) has /
estimated that Nigeria’s earning from crude oil increases from US$8,500 billion
in 1989 to US$10,600 billion in 1990. By 1995, these earnings had declined to
US$7,001 billion and declining further to US$5,276 billion in 1998. However,
crude oil prices have increased steadily in the new millennium following the
implementation of strict production quotas imposed by Oil Producing Exporting
Countries (OPEC) on member countries to stem the flow of excess crude oil in
the global market place.
ThankGod (2011), the result of the dominant role played
by the oil sector in the nation’s economy has made the economic performance of
the country linked to oil prices in the past three decades and will continue to
control the economic base of the country except if the nation’s government
finds an alternative means of achieving the country’s economic needs. Indeed,
the over dependence on the oil sector has inspired the current administration
to diversify the nation’s economy away from its dependence on crude oil by
harnessing natural gas, bitumen and other solid minerals.
Thus, the unexpected boom in the international market
helped to propel the growth of performance of the entire economy (UNECA 2005).
Oil prices rose from US518.00 a barrel in 1999 to USS28.00 in 2000. Also, OPEC
quota for Nigeria increased from 1.885 million barrels a day in March to 2.033
million in April, 2.091 million in July, 2,157 million in October and 2,178
million in 1.88 million barrels a day
were exported from 1.666 million in 1999 and in subsequent years, the barrel
increased.
Egbos (2011), although oil is largely an enclave
sector in Nigeria having a few forward and backward linkages with the rest of
the economy, it remains a decisive force for economic performance. Indeed, oil
impact is transmitted through the income effect, mediated through public
spending and import. In recent times, oil GDP is clearly more volatile than
non-oil GDP. As a result of the volatility of oil prices, the sector often
experience rapid growth in value added on year followed by an equally rapid
decline in the next, with the trend usually reflected in volatile growth for
the economy as a whole.
CONTRIBUTIONS OF THE OIL SECTOR TO
NIGERIA ECONOMY
Okorie (2012), the oil sector has improved the Gross
Domestic Product of the nation which increased the. per capita income per head
as well. Revenue from the sector has improved the nation’s economy steadily
since the discovery of the oil industry in Nigeria. The Oil Producing Exporting
Countries (OPEC), has helped to improve the standard of living of member states
which Nigeria is among the member countries. The OPEC serves as a determining
circle through which the oil rich countries distributes their barrels of oil to
the needy nations at an agreed rate.
Adeyemi the oil industry’ have contributed ‘in the
reduction of unemployed graduates in the country. The sector employ graduates
every year. This reduction in unemployment creates an avenue for the families
involved to improve the standard and welfare of their households. In other
words, the sector train their employed staff abroad for knowledge update
thereby making them experts in their area of specialization. This equally help
them to contribute favourably among their international counterparts.
Murtala (2008), the oil discovery has not only boasted
Nigeria as the giant of Africa but has improved the country’s infrastructural
development, economic advancement and living standard of people. The state of
Nigeria today cannot be compared to how it was before the discovery of oil. It
has improved the country’s export generation and development status.
Anoke, K.N (2012), the impact of oil in the country’s
economy has helped to raise the country’s foreign reserves. It has equally
contributed to the nation canceling their foreign debt. The increase in the
price per barrel especially when member country’s are in dispute increase the
country’s revenue from the sector.
Ade, T. (2009), the presence of oil industry in the
country has contributed in their redistribution of income among member states
in the country. This helps each state to go into internal and external
development of their states. This makes the country’s benchmark for
development. The excess gained from the crude oil sales have helped the country
gained steadily from the sharing formula which help the state governors and
local government administrators to develop their own states and local councils.
OIL INDUSTRY AND FUEL SUBSIDY
The idea of the fuel subsidy is a good one as it was
intended to give the average Nigerian access to cheap petroleum products. There
were obvious flaws in the policy. Attempts have been made by various
governments to get rid of the policy but failed (Odili, 2012). The regulatory
framework, Petroleum and Pipelines Products Regulatory Agency (PPPRA) used to
enforce the subsidy was weak, under resourced and suffered from the Migeria
factor. The secrecy and lack of transparency by the administrator
of the subsidy (The NNPC) did not help matter either.
Duke, D. (2012), Nigeria still cannot make her
refineries efficient. This means that she cannot produce enough refined
products for local consumption. The country has had various failed turn around
maintenance programmes by almost every government in the last 20 years and the
refineries are still not working to capacity resulting in continued imports of
refined products. Most of the so called subsidy disappears in the importation
of refined products that are sold to Nigerians at inflated, manipulated or
distorted pump price.
Hanza (2012), the economic reality of the matter is
that government cannot control the price of a product if government does not
control the supply or how the product is sold to the consumer. The Nigerian
government controlled NNPC is not the sole retailer of refined products in
Nigeria and there are more private retailer than government controlled NNPC
stations.
Kunle (2012), In oil subsidy removal, the theory is
that deregulation and removing the subsidy may initially lead to inflationary
pressures but as the market is opened up to investors, billions of dollars will
flow into the downstream sector and more private refineries will open for
business in Nigeria. Eventually, the market will be self regulatory and prices
for refined petroleum products and other goods and services will be at the
natural market level as competition forces price down, knowing that the long
term benefit will be more than the short term pain.
Kayode (2011), Oil subsidy removal will help
government great imbalance between recurrent and capital expenditure in
Nigeria. Encourage foreign investment in downstream infrastructure, free move
funds for local investment in the oil sector, increased local refinery
production. Removal will reduce importation of refined products in the medium
to long term and eventually stabilize market prices as competition increases
reaction from labour and political leaders.
ISSUES IN THE REMOVAL OF THE FUEL
SUBSIDY
For a solution to the perennial problem of fuel
subsidy costs and fuel supply issues, the government must adopt a lasting
solution that will not only stand the test of time but must also encompass and
anticipate future challenges (Femi, 2012). Such issues must be pursued actively
and must be viable, comprehensive, scalable and robust.
Femi (2012) establish and develop a comprehensive and
viable power and energy policy; it is important to know a clear, articulate,
comprehensive and well integrated policy on both energy and power. The energy
sector encompasses a broad swat of the petroleum industry along with other
sources of energy which includes the fossil fuel while the energy policy
encompasses the use of all fossil fuel which includes the petroleum products,
coal and gas. Therefore, for a nation with Nigeria’s resources and energy use
profile, the crucial and immediate target should be prudent exploitation of
abundant gas resources for electricity generation and greater economic
participations.
Mohammed (2011), achieving the objective of
stabilization and revitalization of refineries for domestic consumption is
absolutely necessary and essential. Given the straight forward nature of this
objective, it is difficult to understand why it has been a near impossible feat
for the government to achieve this-perhaps a clear indicator of the scale of
corruption within; while it may be true that the government is not the best
suited organization for running and operating a refinery still goes without
saying that the government is perhaps the best suited source for financing and
executing such a cost intensive project.
Mustapha (2012), Federal government must re-organize the
ownership and operational structures of the refineries so as to optimize
efficiency. The NNPC refinery subsidiaries and entities shall be dissolved and
liquidated and new structure and management shall be established.
Njoku (2011), the nation’s primary representation in
the oil industry is the Nigerian National petroleum company (NNPC) and it has
become an over-bloated, over burdened and inefficient agency which can best be
described as a can of worms. NNPC should be dismantled and broken into
different independent agencies and after dissolution, it’s role as a regulatory
government agency shall also be transformed to the federal ministry of
petroleum and it’s abundant agencies.
Kunle (2012), oil refineries are often designed with a
specified crude feed stock in mind. The chosen design and construct of a
refinery could also be largely influenced by the investor with regards to final
product output. In the Nigerian scenario, local consumption comprised entirely
of local crude feedback. In other words, there should expand national oil
refinery capacity and improve efficiency.
CONSEQUENCES OF FUEL SUBSIDY REMOVAL
Musa (2011), inflation or hyper inflation may ensue if
the government removes fuel subsidy as higher energy prices are factored into
prices for everything. Equally, public and private sector workers and low
salaried workers will see their standard of living drop drastically as they
struggle to make ends meet. Indeed, the cost of living for the average Nigerian
will rise if the fuel subsidy removal takes place.
Abubakar, K. (2011), Removal of oil subsidy may lead
the country to social and industrial unrest as the cost of living pushes every
citizen to below $300 or less per annum as the average Nigeria lives on GDP per
head.
Shegun (2010), unemployment will definitely rise as
small and medium enterprises (SMEs) find it more expensive to either hire or
retain staff. If workers demand for salary and they cannot pay, they will lay
them off. If consumers lose their jobs they will have no money to buy the foods
or services of these SMEs and these companies will close and lay off their
staff. It becomes a vicious circle.
CHALLENGES IN THE OIL SECTOR
The oil sector has been plagued by various problems
which undermined it’s optimal development over the years. The Nigerian National
Petroleum Corporation (NNPC) is controlled by the ministry of petroleum
resources. It lacks autonomy as a result of which decision taking is often
bureaucratic and unnecessarily delayed. Therefore, the operation of the NNPC is
characterized by inefficiency especially in refinery operations, distribution
and marketing (Ibiyemi 2008).
Ijeoma (2010), frequent delays in the payment of cash
calls for the joint venture operators have tended to discourage increase in the
level of investment by the oil companies. Inefficiency of funds has also
constrained adequate equipment maintenance and efficient refinery operations by
the NNPC. The federal government delays in the payment of cash calls for it’s
point venture operations in the upstream sub sector, focusing more on
maintenance rather than growth.
Okilo (2010), communal disturbances have been
disrupting crude production as oil communities clamour for higher stake in oil
operations. This has led to the kidnap of oil management experts and burning of
oil wells in the designated areas. Communal crisis have caused the lives and
properties of many innocent souls which led to the stoppage of work by many oil
companies and their subsidiaries.
Ademola (2010), there are many case of massive smuggling
of petroleum products across the borders in guest for foreign exchange and to
take undue advantage of the domestic price vis-Ã -vis neighboring countries
prices. This led to the decline in the petroleum supply for domestic
consumption and high increase in the pump prices. It often raise artificial
inflation in the country as other sectors would adjust their own prices at that
period in order to cushion the effect of the oil increase. Equally, some
marketers hoard products in periods of scarcity in order to sell in the black
market at higher prices.
Igbatayo F. (2008), high technical cost of production
due to low level of domestic technological development is most challenging. The
government should improve on domestic technological development than importing
from neighboring countries. This will also increase their level of investments
in the oil sector. Domestic technological development will also curb product
adulteration and as well protect environmental degradation due to the flaring
of associated gas.