Empirical Analysis Of Problems Of Petroleum Products Distribution In Nigeria (A Case Study Of Kaduna Refining And Petrochemical Company)

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Empirical Analysis Of Problems Of Petroleum Products Distribution In Nigeria (A Case Study Of Kaduna Refining 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.


Table of Contents


  • Title Page
  • Declaration
  • Certification
  • Dedication
  • Acknowledgment
  • Table of Contents
  • Abstract

Chapter One:

Introduction

  • 1.1 Background to the Study
  • 1.2 Statement of the Problem
  • 1.3 Research Questions
  • 1.4 Objectives of the Study
  • 1.5 Statement of Hypotheses
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study

Chapter Two:

Literature Review

  • 2.1 Introduction
  • 2.2 Conceptual Framework
  • 2.3 Overview of the Conditions of Nigeria Refineries
  • 2.4 The Actual Total Capacities of the Refineries and the Depots
  • 2.5 Factors Militating against Petroleum Distribution in Nigeria
  • 2.6 Theoretical Framework
  • 2.7 Review of Empirical Literatures

Chapter Three:

Research Methodology

  • 3.1 Introduction
  • 3.2 Research Design
  • 3.3 Area of Study
  • 3.4 Population and Sampling Technique
  • 3.5 Methods of Data Collection
  • 3.6 Methods of Data Analysis
  • 3.7 Summary

Chapter Four:

Data Presentation and Analysis

  • 4.1 Introduction
  • 4.2 Respondent Characteristics
  • 4.3 Data Presentation and Analysis
  • 4.4 Test of Hypothesis
  • 4.5 Summary of Findings

Chapter Five:

Summary Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendations
  • Bibliography
  • Appendix I
  • Appendix II

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

  1. What are the constraint militating against Nigeria’s state-owned refineries and petrochemicals plants as well as affiliated regulatory agencies in Petroleum product distribution?
  2. 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:

  1. To identify the factors militating against Nigeria’s state-owned refineries and petrochemicals plants in Petroleum product distribution.
  2. 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.


Chapter Five


Summary, Conclusion and Recommendation

5.1 Summary

The study assessed the problem of petroleum product distribution in Nigeria. As such, the research question that guided this study are; What are the constraint militating against Nigeria’s state-owned refineries and petrochemicals 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 The mean(x) was used to analyze data while chi-square was used to test hypothesis. The analysis show that The Frequent pipeline vandalisation, Poor maintenance of petroleum infrastructures, 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 adultration are challenges militating against petroleum product distribution from the side of major and independent marketers of petroleum product.


5.2 Conclusion

The distribution system of petroleum products in Nigeria is found to be ineffective and inefficient due to a number of factors which have been identified. The research indicated in this regard that the Frequent Pipeline

Vandalisation: Poor maintenance of petroleum infrastructures, 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 adultration are challenges militating against petroleum product distribution from the side of major and independent marketers of petroleum product.


5.3 Recommendations

In line with the findings obtained, the following recommendation is proffered:

  1. 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.
  2. The government should encourage more private company participation. Deregulated downstream requires adequate industry facilities, relaxation of some laws, a change in pricing policy as well as provision of transport and storage facilities. To attract new entrants into the market, product prices (before taxes) have to be set by the market in line with economic border prices. Prices need to reflect differences in regional transports costs and market size. Price distortions such as subsidies and taxation need to be reviewed. In addition, downstream taxation must not differentiate between local and foreign supplies or between petroleum products. As regional integration progresses, cross-border prices will become increasingly harmonized and hence fewer products will be smuggled. A regulatory entity must be established to monitor the market and to react rapidly to any deterioration of product quality or non-competitive behaviour.
  3. Government should fight corruption by establishing institutions that will arrest and prosecute corrupt public office holders. The major obstacle to Nigeria’s self sufficiency in refining fuel are the cabal and cartels of public/political officials and the fuel importing syndicate that combine to frustrate any attempt to formulate and implement sustainable policies that enable the proliferation of refineries in Nigeria. Surely it will be cheaper to refine the fuel in Nigeria and our neighbouring countries will prefer to buy from us rather than import form far-away lands. Therefore, eschew corruption, smuggling and sarbotourism.
  4. It is recommended that the downstream sector of the industry be completely deregulated, and the apparent subsidy be removed such that the prices of the products will be determined by the market forces of demand and supply.
  5. For the deregulation policy to succeed, all stakeholders (i.e. community, government, investors, consumers, etc) must be duly considered. This consideration is only guaranteed in the Total Market Concept whose pre-occupation is the satisfaction of the customer as well as other stakeholders within the sector.

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