Deregulation and Privatization of Upstream and Downstream Oil and Gas: A Case Study of NNPC, Lagos
Chapter One
Objectives of the study
The main objective of the study is to examine the deregulation and privatization of upstream and downstream oil and gas. Specifically, the study sought to:
- Examine the perception of Nigerians on the influence of deregulation and privatisation moves of the government in the oil and gas industry in Nigeria.
- The role of deregulation and privatization in promoting national sustainable development in the country.
CHAPTER TWO
LITERATURE REVIEW
Concept of clarification
Deregulation:
Deregulation entails opening up of the market and de-monopolization of the hitherto stateowned and managed enterprises (Oparah, 2004). Fashola (2012) conceptualized deregulation as “to allow private enterprises to drive productive activities in the economy of our nation”. To him, there are many things that would happen in deregulation and subsidy is one of them.
Deregulation is the gradual withdrawal or removal of regulation in the way of liberating the economy. The concept is also referred to as the system of removing impediments to trade; control of the movement of goods and services, thereby allowing free flow interplay of the forces of demand and supply in the determination of the price of commodities and wages of services rendered (Ojo, and Adebusuyi, 1996). From the dictionary perspective, the Oxford Advanced Learners’ dictionary (2005) defined deregulation as the act of freeing a trade or business outside of the rules and controls. Deregulation therefore occurs when the government seeks to allow more competition in an industry that allows more competition in an industry that condoles near monopolies hence, a general word that refers to the practice of transforming an economy to one that is open to all interested players and is usually driven by market forces. Akinwumi et a (2005), sees deregulation as the removal of government interference in the running of a system. This means that government rules and regulations governing the operations of the system are relaxed or held constant in order for the system to decide its own optimum level through the forces of supply and demand (Ekundayo, and Ajayi, 2008).
To deregulate as defined by the Oxford Advanced Learner’s Dictionary (2005) means to free a trade, a business activity from rules and controls; that is to decontrol whilst to privatise means to sell a business or an industry so that it is no longer owned by the government; that is to denationalise. Deregulation as defined by investorwords.com means the removal of government controls from an industry or sector to allow for a free and efficient marketplace. Deregulation occurs when the government seeks to allow more competition in an industry that allows near-monopolies.
Deregulation enhances competitive service delivery that will enable consumers to have wide range of choices as regards their quest for satisfaction. A glaring example can be seen in the telecommunication sector (Omodia, 2007). As noted by the World Bank (1988), experience has shown that competitive markets- mainly involving private sectors are the most efficient ways to supply goods and services. Government role usually can be limited to policy making, while leaving actual investment, operation and maintenance to nongovernmental entities (Omodia, 2007). According to Onipede (2003) the continuous abysmal performances by most of the government parastatals are the undisputable evidences of inappropriateness of government involvement in business. Onipede further asserts that those who continuously argue against NEPA’s now PHCN’s privatisation cited loss of jobs and national security as reasons. Rational minds would definitely disagree with this reasoning. Thus, deregulation and privatisation are believed to be capable of enhancing efficiency and effectiveness in service delivery.
According to Olayiwola (2009), oil and gas operations commenced in Nigeria effectively in 1956. A brief historical excursion indicates that oil exploration started in 1908 in Lagos and Okitipupa coastal areas both in Western Nigeria by the Nigerian Bitumen Company established by a German Consortium. Between 1908 and 1956, various exploration and exploitation continued in various parts of Nigeria. In 1956, oil was discovered in commercial quantity at Oloibiri, present day Bayelsa state (Ihua, Ajayi & Eloji, 2009); in the Niger Delta region of Nigeria by Shell D’Arcy. This development heralded Nigeria’s membership of Organisation of Petroleum Exporting Countries (OPEC) in 1971. The exploration of oil and gas is predominantly concentrated in the Niger Delta where multinational companies and a few of the indigenous ones are engaged in production and exploration of oil and gas. The oil and gas industry comprises the upstream, the downstream and service sectors. The upstream sector focuses on mining, exploration, production and exportation and is dominated by multinational companies (Ogbeifun, 2009). Chevron, Shell, Agip, Elf, Texaco, Esso-Mobil inter alia belong to the upstream sector.
According to Adewumi and Adenugba (2010), these multinational companies weld so much power within the Nigerian state and the communities. They have been able to exploit, explore and produce oil within the Niger region axis without corresponding development. A few indigenous upstream oil and gas companies exist in line with the provision of local content policy of the government. The downstream sector is involved in refining of crude oil into usable products through distillation, conversion and other special treatments to arrive at petroleum products and gas. It is also involved in distribution of products. The downstream sector has been constrained by unenviable state of the refineries, which have been producing at minimal capacities despite huge expenses incurred on turnaround maintenance of the crisis-ridden refineries (Aigbedion & Iyayi, 2007). Petrochemical plants and fuel stations belong to this sector. The service sector provides technical and consultancy services to aid the upstream sector in drilling, exploration and production activities. The Nigerian government is a major investor in the production activities of the upstream sector and its activities are coordinated mainly by the Nigerian National Petroleum Corporation (NNPC). The Department of Petroleum Resources (DPR) acts as the regulatory agency for the oil and gas sector. Aside from the NNPC and the DPR, the Ministry of Energy, the Federal Ministry of Environment, the Federal Inland Revenue Service and the Niger Delta Development Commission are the principal government agencies responsible for oil and gas matters in Nigeria (Chidi, Badejo & Ogunyomi, 2011).
Deregulation of the Downstream Sector:
Reginald (2009) described deregulation of the downstream sector as the opening of the downstream sector to competition where players are to participate at every segment of the value chain and the removal of entry barriers in the supply and distribution of petroleum products. The PPPRA similarly submit that deregulation of the downstream sector means opening up of the downstream sector of the petroleum industry to competition among all players in the industry. It means allowing every player the opportunity to refine or import petroleum products for use in the country in-so far as the product so refined or imported meet quality specification. Igbikiowubo (2011) defined deregulation of the downstream sector to mean loosening the tight rules governing the administration of the downstream sector by opening up the sector to competition among all players in the industry. It means ensuring that every aspect of production, refining, distribution and dispensing of petroleum products is self-financing. Deregulation involves competitive pricing of products.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
This study adopted the survey research design in analyzing the deregulation and privatization of upstream and downstream oil and gas, with respect to NNPC, Lagos.
Sources of Data
The data for this study were generated from two main sources; Primary sources and secondary sources. The primary sources include questionnaire, interviews and observation. The secondary sources include journals, bulletins, textbooks and the internet.
Population of the study
A study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitute of individuals or elements that are homogeneous in description (Prince, 2019). In this study the study population constitute of both staff and non-staff at NNPC Lagos
CHAPTER FOUR
RESULTS AND DISCUSSION
Results
Sociodemographic data for respondents
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
Conclusion
Deregulation and privatization are now global phenomena. They are the offshoot of economic globalization. For an economy to be competitive it needs to embrace global standards. We cannot escape globalization and so we must be part of it. The attitude of some Nigerians towards deregulation and privatization of the oil and gas industry has been indifferent as many hold the notion that such government policies will lead to job losses as well as high cost of living.
In a fast-moving world of today, there is need for a new orientation as to how things are done. There is constant need to change what we do in leadership and how we do it irrespective of the sectors we find ourselves and position(s) we occupy. Amidst circumstances of uncertainties, changes and challenges in the petroleum sector, Nigerians are looking for help in understanding questions about what matters, what to do, what direction to take. Providing Nigerians with answers is the essence of leadership roles.
Leaders cannot exist without followers, nor do followers exist without leaders. Therefore leaders
should take cognizance of critical needs (hope, stability, compassion and trust) of followers, understands them and help meet them. Changes in the structure of governance and organizations have resulted in the need for leaders to be strategic, visionary, exemplary and transformational.
Recommendations
This negative attitudinal posture; poses the greatest problem to the Nigerian economy. It was found that the deregulation and privatisation of the oil and gas industry will usher in sustainable national development and will be a blessing rather than a curse for the citizenry. The following recommendations are made:
- The authors recommend that strategic sectors such as oil and gas as well as the power sector should be deregulated and privatized for sustainable national development.
- It is recommended that the regulatory framework and environment should be such that encourage maximum competition. Accordingly, government must repeal all laws that inhibit competition and should pass laws that protect investors.
- Government should prepare to address the labour problems, which may arise as a result of deregulation and privatization. A proactive programme of education of labour unions should be pursued. More so, safeguards against job losses should be embarked upon.
- It is recommended that government should leave the management of company in the hands of the strategic partner.
- Government sales option (of 40% to strategic partner, 20% Nigerian public and 40% government) should be implemented accordingly even at the reduced equity holding by government. However it is recommended that government divests gradually its remaining shares at a minimum of 5% per year to the Nigeria public.
- It is recommended that workers should be allowed to have a stake in the refineries in the form of equity participation. This will reduce the risk of shortage usually associated with workers’ union activities and ensure greater commitment to the survival of the refineries.
- It is recommended that the government should in effect provide the broad guidelines for the operation of the refineries and allow private initiative in the running of refineries.
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