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POLITICAL ECONOMY OF FUEL IMPORTATION AND CHALLENGES OIL SUBSIDIZATION IN NIGERIA 2012-2018


TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgment

Abstract

Table of content

CHAPETR ONE

1.0   INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

 

 

 

 

 

 

 

 

 

Abstract

The relatively slow pace of Nigeria’s development has often been attributed to the phenomenon of the resource curse whereby the nature of the state as a “rentier” dilutes accountability for development and political actors are able to manipulate institutions to sustain poor governance. The impact of the political elite’s resource control and allocation of revenues on core democratic mechanisms is central to understand the obstacles to development and governance failure. Given that problems of petroleum sector governance are extremely entrenched in Nigeria, the key question is whether and how it is possible to get out of a poor equilibrium after fifty years of oil production. This study uses a political economy perspective to analyze the governance weaknesses along the petroleum sector value chain and attempts to establish the links between challenges in sector regulation.

 

 

 

 

                                        CHAPTER ONE

                                        INTRODUCTION

1.1 Background of the study

 Nigeria’s last two decades produced the template that leads to its fuel import-dependent and single-resource economy in the midst of abundant oil endowments. Nigeria depends 85 per cent and above on the importation of petroleum products (Chikwem, 2014; Nwachuku, 2012), with massive infusion of subsidies introduced in 1973 to stabilise the price of fuel and insulate Nigerians from the wild fluctuation of global market price. Ploch (2013, p. 9) observed that ‘Nigeria imports an estimated $10 billion of fuel annually for domestic consumption.’ In 2012, ‘Nigeria consumed 270,000bbl/d and in 2013, she imported slightly more than 84,000bbl/d of petroleum product’ (US Energy Information Administration, 2013, p. 13). Unfortunately, fuel importation/fuel import licences to independent marketers have been subjected to favouritism, prebendalism and clientelism, recycled among the dominant class, with the consequences of discouraging investors in the development of new refineries in the downstream oil sector of Nigeria. This throws up a fuel import ‘cabal’ that has a vice grip of fuel importation. Boyo (2015) observed that this group of businessmen would do everything to ensure that refineries will never work, and that the subsidy regime would subsist, while fuel supply will continue to be carefully manipulated to regularly induce artificial scarcity so that bountiful profit can be harvested from the attendant sufferings and economic dislocation deliberately caused by the oil cabal. This ugly situation persisted for a long time and subsequently led to a public outcry that precipitated to the enactment of different fuel importation probes in the downstream oil and gas sector of Nigeria. These probes are the report of the audit of the importation of fuel commission by Nigeria National Petroleum Cooperation (NPPC) in 2008; the report of Nigeria Extractive Industries Transparency Initiative (NEITI) 1999–2004, 2005, 2006–2008 and 2009–2011; the report of the audit of the NNPC by KPMG Professional Services which exposed fuel subsidy scam submitted to the presidency on 22 November 2010 and the report of the House of Representatives Ad-hoc Committee tagged Resolution No. (HR.1/2012) on fuel subsidy probe that exposed different subsidy scams. In fact, all these probes showed that Nigeria has subsidised fuel importation more between 1999 and 2013 than the past 35 years before 1999. Discourses on oil are controversial globally. The Nigerian case is not an exception. Whilst crude oil remains a predominant source of energy and wealth for the global economy, its discovery in Nigeria has led to the negation of agriculture, which ab initio employed 75% of the population and contributed over 80% to GDP. Today, Nigeria is reliant on oil for about 99% of its foreign exchange earnings (Aghalino, 2006). She is the world’s 14th largest producer of crude oil with the 10th largest proven natural gas reserves. The country has four refineries with an installed production capacity of 445,000 barels of fuel per day, adequate enough to meet its domestic needs with a surplus for export (CCPA, 2012). The above statistics would suggest the formidable potentials of the Nigerian economy. On the contrary however, she remains a large net importer of gasoline and other petroleum products and continues to rank low in human development indicators. Harsh economic realities and frequent world oil price fluctuations prompted the introduction of subsidies in Nigeria’s energy sector in the mid 1980s. Something of a creeping phenomenon, the value of the subsidies has gone from 1 Billion in the 1980s to over 6 Billion Dollars in 2011 (CPPA, 2005). The maintenance of fuel subsidy in Nigeria is said to have led to a situation whereby the commodity became much cheaper in Nigeria ($0.44 per litre) compared to neighbouring countries like Benin ($1.04), Niger ($1.07), Cameroon ($1.2) and Chad ($1.32). Accordingly, it was concluded that large subsidies led to petroleum products smuggling to neighbouring countries and stagnated economic development (Africa’s Pulse, 2012). Driven by institutions of global governance – the IMF, World Bank and other Donor agencies, successive Nigerian governments suddenly became determined to phase-out subsidies in consonance with the harsh economic realities of the times (Okogu, 1993). Over the past decades, the oil subsidy patchwork has been allegedly bedevilled by criminal tendencies of oil importers and sharp practices in the distribution of import allocation, approval of subsidy payments and actual release of subsidy cheques. In Nigeria, more than 25 oil marketers have been indicted to face criminal charges and a host of other marketers that have benefitted from fuel import subsidies are said to be statutorily unqualified to import fuel as they were not licensed to carry out any form of business in Nigeria (Oshunkeye, 2012). Subsidy by definition is any measure that keeps prices consumers pay for a good or product below market levels for consumers or for producers above market. Subsidies take different forms. Some subsidies have a direct impact on price. These include grants, tax reductions and exemptions or price controls. Others affect prices or costs indirectly, such as regulations that skew the market in favour of a particular fuel, government-sponsored technology, or research and development (R&D) 1 . Energy subsidies and specifically fuel subsidies, which are the subject of this review, have a long history and have been applied in different forms with differing outcomes internationally1 . Two major classes of subsidies exist: production subsidies mainly a feature of developed economies and consumer subsidies, which are found mainly in developing countries. The justifications for introduction or removal of subsidies vary markedly. In developed economies Environmental issues, international trade and maintaining competitiveness are the main drivers of policy. Whereas welfare, poverty alleviation and election cycle politics largely underpin the reasons for which subsidies are introduced in developing countries.

1.2 STATEMENT OF THE PROBLEM

Nigeria is the largest producer of crude oil in Africa and 10th largest in the world with 37.07 billion barrels of proven oil reserves (WorldAtlas, 2017). In 2015, crude oil production in the country reached a peak rate of 2.7 million barrels per day. For natural gas, Nigeria also has the largest reserve of natural gas in Africa and 7th largest in the world, estimated at 188 trillion cubic feet (The Guardian, 2017). The oil and gas industry is traditionally divided into 3 major sectors, namely: the upstream sector, the midstream sector, and the downstream sector. The upstream sector comprises of crude oil exploration and production into terminal tanks, the mid-stream sector handles the transportation of produced crude oil to refineries.  Government control of petroleum product prices has been a major issue before now, especially in the face of the unprecedented failure by government to get existing refineries working to full capacity. For many years now, and with the near-total collapse of the refineries, Nigeria, a major producer of crude oil in the world has depended on the importation of petroleum products to meet its domestic needs. Investors, who had wanted to invest in the establishment of refineries, were scared away by what they saw as unfriendly pricing, leaving product marketers with low or no margins, except when government stepped in with a heavy subsidy that ate deeply into its treasury. It is in view of this that necessitate the need for the study political economy of fuel importation and the challenges of oil subsidization in Nigeria 2012-2018.

1.3 OBJECTIVE OF THE STUDY

The main objective of this study is to examine the political economy of fuel importation and the challenges of oil subsidization in Nigeria 2012-2018, but to aid the completion of the study, the researcher intend to achieve the following specific objectives;

  1. i) To examine the effect of fuel importation on the growth of Nigeria oil and gas sector
  2. ii) To ascertain if there is any significant relationship between fuel importation and oil subsidization in Nigeria

iii) To examine the role of government in combatting corruption in the oil and gas sector

  1. iv) To ascertain the impact of subsidy on importation of PMS and availability of the product

1.4 RESEARCH QUESTIONS

The following research questions were formulated by the researcher to aid the completion of the study;

  1. i) Is there any significant relationship between fuel importation and oil subsidization in Nigeria?
  2. ii) Does subsidy has any impact on the importation of premium motor spirit (PMS) and product availability

iii) Does government play any role in combatting corruption in the oil and gas sector?

  1. iv) Does fuel importation has any effect on the growth of Nigeria oil and gas sector?

1.5 SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study, the findings will be of great importance to the management of NNPC Nigerian national petroleum corporation on the management of fuel importation and it effect on economic growth in Nigeria, the study will also be of great importance to the Honorable minister of petroleum in formulating policies that will aid the development of indigenous refineries in Nigeria, the study will also be of importance to researchers who intend to embark on a study in a similar topic as the study will serve as a reference point for further research, the study will also be useful to students, teachers, lecturer and the general public as the study will add to the pool of knowledge.

 

1.6 SCOPE AND LIMITATIONS OF THE STUDY  

The scope of the study covers political economy of fuel importation and challenges of oil subsidization in Nigeria 2012-2018. In the course of the study, there are some constrain that limited the scope of the study;

  1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
  2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
  3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.7 DEFINITION OF TERMS

Politics

Politics is the process of making decisions that apply to members of a group. It refers to achieving and exercising positions of governance—organized control over a human community, particularly a state

 

Fuel

A fuel is any material that can be made to react with other substances so that it releases chemical or nuclear energy as heat or to be used for work.

Refineries

refinery is a production facility composed of a group of chemical engineering unit processes and unit operations refining certain materials or converting raw material into products of value.

Importation

An import is a good brought into a jurisdiction, especially across a national border, from an external source. The party bringing in the good is called an importer.

Subsidy

Monetary assistance granted by a government to a person or group in support of an enterprise regarded as being in the public interest.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

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Author: SPROJECT NG