EMPIRICAL ANALYSIS OF PROBLEMS OF PETROLEUM PRODUCTS DISTRIBUTION IN NIGERIA (A CASE STUDY OF KADUNA REFINNING AND PETROCHEMICAL COMPANY)
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EMPIRICAL ANALYSIS OF
PROBLEMS OF PETROLEUM PRODUCTS DISTRIBUTION IN NIGERIA (A CASE STUDY OF KADUNA
REFINNING AND PETROCHEMICAL COMPANY)
ABSTRACT
The study assessed the Problem of Petroleum Product
Distribution in Nigeria. As such, the research questions that guided this study
are: What are the constraints militating against Nigeria’s state owned
refineries and petrochemical plants as well as affiliated regulatory agencies
in Petroleum product distribution? What are the problems associated with the
distribution of petroleum product in the downstream sector? 120 respondents
were selected using the random sampling technique to select 50 independent
petroleum product marketers, 50 staff from PPMC and 20 staff from NNPC and 20
staff from NNPC. The mean (X) was used to analyze the data while chi-square was
used to test the hypotheses. The analysis shows that the frequent pipeline
vandalization, poor maintenance of petroleum infrastructure, as well as
Inefficiency and Corruption of government officials and under-utilization of
Refineries by NNPC are the main constraint militating against Nigeria’s
state-owned refineries and petrochemicals plants as well as affiliated
regulatory agencies in petroleum product distribution. Diversion of petroleum
products, hoarding of petroleum products, the use of old tankers that are in a
poor state of operation and poor state of road in Nigeria, sabotage, crude oil
and petroleum product bunkering, petroleum product adulterations are some of
the challenges militating against petroleum product distribution from the side
of major and independent marketers of petroleum product. As such, it was
recommended that the Nigerian National Petroleum Corporation (NNPC) should
diversify its export/output baskets through adequate downstream activities.
This will enhance self-sufficient in petroleum products and economic growth.
Nigeria’s fuel shortages can never be solved by importing more fuel. Importing
fuel is a temporary (short term) solution. Building more refineries in Nigeria
to meet our domestic consumption and possibly export to neighboring countries;
undoubtedly is a sure solution to Nigeria’s perennial fuel shortages.
CHAPTER ONE
INTRODUCTION
1.1 Background to
the Study
The Nigerian petroleum industry has been described as the largest
among all industries in the country. This is probably due to the belief that
petroleum is one of the major sources of energy worldwide. The size,
international characteristic, and role assumed by the petroleum industry were
noted to have originated from the notion that petroleum is versatile as it
currently satisfies a wide variety of energy and related needs. Petroleum is
the most vital source of energy, providing over 50 percent of all commercial
energy consumption in the world. The revenues obtained from crude oil in
Nigeria are of absolute advantage to expenditure commitments on various
projects at the local, state, and federal levels. The Nigerian economy relies
heavily on the revenue derived from Petroleum products, as they provide 70
percent of government revenue and about 95 percent of foreign exchange earning.
Apart from this, the contribution of petroleum to national development is many
and varied; employment generation, foreign exchange earnings, income
generation, industrialisation, and improvements in other economic variables.
The Nigerian economy is starkly dominated by the petroleum
industry since the oil boom of the 1970s. Therefore, its economic growth and
development also is dependents on the production and consumption of Petroleum
product and hence, a close connection between the state and oil in Nigeria
(Okunroumu, 2004; and Falegan & Okah, 1980). For instance, Wurthmann (2006)
noted that oil accounts for about 40 per cent of Nigeria’s GDP, 70 per cent of
federal government revenue and 92 per cent of its foreign exchange earnings.
Also, daily domestic demand for Petroleum products stands at 530,000 barrels
per day (bpd) which is 85,000 bpd more than the never-made 445,000 bpd
installed refining capacity. As a result, Petroleum products supply remains an
acid test for successive governments in Nigeria. With the inception of
democracy in May 29th, 1999, the supply of Petroleum products has improved but
not without a price – frequent increases in Petroleum products price yet demand
of Petroleum product is still higher than supply (Sabo and Igwo, 2007:105).
As a result people clamor for deregulation of Petroleum
product. In Nigeria, the 2003 deregulation of the sector is expected to give
room for competition and maximize supply sources which would transform to price
reduction and deflate scarcity. Prior to this moment, attempts were made to
invite private firms into the sector, most of whom, including NNPC itself,
sought for the importation of Petroleum products instead. Yet still fell out due
to regulated domestic prices and a whooping amount as subsidy to the consumers
(Nwafor, M. et al, 2006:11). The private investors were also not willing to
take over the dilapidated, disrepair, and poorly performing state owned
facilities (refineries, depots and pipeline system). Thus, the sector is so
plagued by, not only, low capacity utilization of the midstream sector,
inadequate distribution (pipeline, rail and road) networks and storage
facilities, products diversion and adulteration, black-marketing, fire
incidents, smuggling as well as inefficient monopolistic/state control on
prices (Oriyoosu, 2007:113-115
Hence petroleum distribution is constraint by issues arising
from poor maintenance of facilities and infrastructure by government; products
adulteration and pipeline vandalization; low investment opportunities; sabotage
by cartels, large-scale smuggling of crude and refined oil as well as the
importation of Petroleum products.); rampant black markets, e.t.c. due to
inefficient market structure caused by the monopolistic control of the state on
price (Oriyoosu, 2007:113-115).
As a result widespread Petroleum products shortage and
unending price hikes are the daily reports bringing untold hardship to the
rapid growing Nigerian populace. Therefore, the low Petroleum products from
local refineries, inadequacy of Petroleum products importation at international prices, and
particularly, inefficiency of domestic prices of Petroleum products set by the
state and numerous constraint that have not yet being discovered by previous
researches, stand out as the fore setbacks to petroleum distribution in
Nigeria. It is against this background that this study is triggered.
1.2 Statement of
the Problem
Many research efforts in the area of petroleum distribution
in Nigeria have dealt with macro issues, as well as conduct and performance of
marketing activities as they relate to performance indices such as market
share, growth, efficiency and well being of consumers and clients. However
there are few researches on the problems of petroleum distribution in Nigeria
(Okoh,2012).
Hence the problem of this study is to analyze the problem of
petroleum distribution in Nigeria by investigating factor militating against
Petroleum product distribution from government refineries as well as from the
side of major and independent marketers. In this regard the research is focused
on issues of sabotage of petroleum infrastructures and illegal bunkering as well as problem of ineffective regulation
of Petroleum product in the downstream sector and inefficient utilization and
maintenance of Nigeria’s state-owned refineries and petrochemicals plants in
Nigeria and the institutionalised corruption of government officials and
independent marketers in charge of Petroleum product distribution.
1.3 Research
Questions
i) What are
the constraint militating against Nigeria’s state-owned refineries and
petrochemicals plants as well as affiliated regulatory agencies in Petroleum
product distribution?
ii) What are
the problems associated with the distribution of Petroleum product in the downstream sector?
1.4 Objectives of
the Study
The central objective of the studies is to examine the
problem of petroleum distribution in Nigeria. The specific objective are:
i. To identify the factors
militating against Nigeria’s state-owned
refineries and petrochemicals plants in Petroleum product distribution.
ii. To
find out the problems associated with the distribution of Petroleum product in the downstream sector.
1.5 Statement of
Hypotheses
To give this work a sense of direction, the following pairs
of hypotheses have been considered:
1. H0:
Petroleum product distribution in Nigeria’s state-owned refineries and
petrochemicals plants is not hampered by pipeline sabotage and illegal
bunkering as well as institutionalised corruption of government officials.
H1: Petroleum product distribution in Nigeria’s state-owned
refineries and petrochemicals plants is hampered by pipeline sabotage and
illegal bunkering as well as institutionalised corruption of government
officials.
2. H0:
Petroleum product distribution in the downstream sector is not associated with
hoarding and diversion of Petroleum products by major and independent
marketers.
H1: Petroleum product distribution in the down stream sector
is constraint with the problem of hoarding and diversion of Petroleum products
by major and independent marketers
1.6 Significance
of the Study
This study is of great relevance to the Pipeline and Product
Marketing Company (PPMC), petroleum marketers and consumer. This relevance
applies to researchers and scholars of Petroleum products and its distribution
process. The Federal Government is likewise a beneficiary of this study as they
will be aware of the cancer eating up the distribution process and a better
approach to tackling it.
Finally, this study is of great relevance to the general
public as they are enlightened on the process of distribution and also the
dangers associated with the disruptions of the smooth flow of these products
pipelines.
1.7 Scope of the
Study
The study covers the Country's Pipelines and Product
Marketing Company's network nationwide. The period covered is from 2006 – 2011.
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