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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