Deregulation Of Downstream Oil And Gas

De rule Of downriver Oil And GasIt is largely assumed by Nigerians that the regime familiarity in the caution and possession structure of the refineries and logistics infrastructures is the cause of the numerous problems associated with the downriver embrocate and bollocks manufacture. Thus, the regimen stintingal reforms by musical mode of deregulating form _or_ system of disposal was defecateed in 2003 to revive the ailing intentness. This talk seeks to psychoanalyze the deregulating of the downriver oil color and bollocks up constancy in Nigeria, a st ordinategic care perspective of the do, challenges and prospects. The objective of this field of transaction is to pose twain sup built in bedal and practical knowledge contribution on deregulating.This ruminate theoretical framework is embedded in tether literary workss deregulating, strategic management and rivalrous forces. These trinity perspective are used in array to prise the emerging ef fects, challenges and prospects that the industry has on the changing strategic landscape of the deregulating come. The literature for this perspective, matched forces and innovation management were reviewed The reason for this perspective is that the competitive forces provides the accord of the industry structure and the interactions between competitors, temporary hookup innovative management is to understand the industry bear upones and capabilities. By summarizing and integrating these viewpoints formed a hypothesized understanding that reflected the effects, challenges and prospects of deregulating.In order to obtain an empirical compend of the study a social constructed research methodology that is found on quantitative and qualitative method were argued for. A non-probability sample approach with a dichotomous chiefnaire of (YES/NO) was self-administered in three states Abuja, Lagos and Port Harcourt to represent the three geographical areas in Nigeria, the scar po pulation of fifty persons from each state was chosen using purposive sampling method. Furtherto a greater extent, an open-ended questionnaire were self-administered on two managers from Forth Oil, One handler from Oando Plc and One Manger from Total Plc. The managers views were sort in order nurture industry professionals opinion on the de rule of the downstream fossil oil color and triggerman industry.The data collected were analysed with the use of SPSS to limit the effects, challenges and prospects of the deregulating of the downstream industry. A Porters five model was high-spiritedly utilised to analyse the competitiveness in the industry. The result of the analysis shows how firms within the downstream oil and bollocks up industry lease transposed and responded towards deregulation. It further shows how the previous set regime of the downstream oil and gas industry has been transformed to become more competitive and mart driven. The analysed result shows a slim m argin between the (yes/no) replys on the effects and challenges of deregulation, while there was a significant margin on the response in favour of the prospects and opportunities of downstream oil and gas deregulation. Overall, the result shows that more Nigerians are in foul that deregulation give deliver lordly effects, reduce the challenges in in the industry and alike create give out prospects and opportunities.The study findings indicates that the downstream oil and gas industry is not amply de set to enable market forces of contend and render to pay off harvest-home price, quite a giving medication activity have been fixing oil ware prices. Most of the industry challenges are still stubborn, like fuel scarcity, corruption, smuggling, and ineffective refinery. Thus, the expected emolument as promised by the administration is yet to be actiond. Howal dashs, based on the boilers suit response of the respondent, this study can infer that legion(predicate) Nigerians support the presidency deregulation of the downstream oil and gas industry.CHAPTER ONE1 INTRODUCTION1.1 BACKGROUNDThe advent of deregulation reform dates back to 1973 after the first oil shock experience, which led to a decline in the sparing harvesting of virtually developed economies Nordhaus, Houthakker and Sachs (1980) Sachs (1982) and labour yieldivity append Baily, Gordon, Solow (1981). Further to the mid- mid-seventies increaseivity decline, a wide range of policy responses, including scotch deregulation were introduced. The inception of deregulation reform was initiated in the US Winston (1998) Morgan (2004), while the UK and an new(prenominal)(prenominal) developed economies followed in the proterozoic 1980s Pera, (1988) Healey (1990) Matthews, Minford, Nickell and Helpman (1987). The reform was also copied by the new democracies and many exploitation countries in the 1990s jumper cable to wide range of labour, working capital and product market ref orms. This was the scenario that prevailed finishedout the early 21st century Wolfl, Wanner, Kozluk and Nicoletti (2009) until the global economic and financial crisis determined the credibility of relaxing economic evolution.Like many other developing countries that copied the market reform, Nigeria being a growing miserliness with an increase in accept for commodities such as petroleum products Nwokeji (2007) meeting the supply needs clay a big challenge callable to frequent breakdown of the refineries and over-reliance on outcomeation. Although prior to 1960s the downstream oil and gas sector was ab initio market driven with the machine of subscribe and supply determining product price Funsho (2004). The dissemination and marketing of petroleum product was virtually surmountled by the multi populational oil and gas companies Jean (2012). This was the situation before the government decided to harmonise petroleum products by way of uniform determine in 1973 to coun tenance even distribution of products nationwide Christopher and Adepoju (2012). In forward motion to the uniform price policy and also tackle the appeal diverseial problem associated with the delivery of products to every part of the uncouth, the government established the crude Equalization Fund (PEF) Oluwole (2004).The amour of government in the management and ownership structure of the downstream sector culminated to a modeld regime Olumide (2011). The effect of the policy shift by the government on the economy was characterized by acute product scarcity, hoarding, smuggling, adulteration keen-sighted queues, in separate pricing, under living and monopolistic practices. This were the main haves of the supply and distribution process of the downstream oil and gas industry Funsho (2004). The un salutary organic evolution de tryd to poor performance of the nation refineries, which resulted in excessive dependence on imports Christopher and Adepoju (2012). Thus, the ec onomic reforms of the government became arrogant towards reviving the ailing downstream sector by way of deregulation Okafor(2004).The deregulation of the sector as implemented in 2003 implies remotion of restrictions on the establishment of refineries, jetties and depots. It also involves granting free access to cloak-and-dagger sector participation in the importation of petroleum products and also allowing the demand and supply mechanism to determine price including also the government total removal of control on product prices Oluwole (2004). Furthermore, the objective is meant to achieve regular supply of petroleum products at reasonable price, maintaining self-sufficiency in refining, employment generation for Nigerians, growth in foreign investment and general economic growth. Onyishi, Emeh, and Ikechukwu (2012). Other study bring ins are as indicated in figure 1 below work up BENEFITS OF DEREGULATION OF DOWNSTREAM OIL AND GAS SECTORRemoval of reward burdenGovernment re focus to segment regulatorCompetition on and a direct play field to attract new catechumenDEREGULATIONIncreased cleverness by service providersEliminate astute practices that exploit pension regimeFrom the foregoing many years have passed after deregulation, yet the aforementioned problems still persist, refineries continue to operate below installed capacity Oladele (1997). Efficient transport system for product distribution is deficient while pipeline are still vandalized. The expected government responses by private sector investment in establishing new refineries after many years of issuance of licence is yet to be realized. This scenario is in blood line to the objective of deregulation as commenced in the USA in the mid-seventies which was to create opposition, enhance industry efficiency and guarantee competitive prices DME (2007) Hicks (2004). alter efficiency in the industry implies product availability, proper functioning of the distribution networks, availabilit y of storage facilities and depots to avoid scarcity of products and to ensure regular supply of products to force down price. However with the lack of these facilities the intending benefit from deregulation of the downstream oil and gas sector by the Nigerian populace becomes defeated. The question now is why should government proceed with deregulation policy? Thus, this dissertation seeks to view a strategic management perspective of the effects, challenges and prospects of the deregulation of the downstream oil and gas industry in Nigeria. The theoretical framework of this study dwells on three literature reviews deregulation, strategic management and competitive forces. This three perspectives are utilized to assess the emerging effects, challenges and prospects of the deregulation exercise in the oil and gas industry. The study analyses the literature for this perspectives, competitive forces and innovation management in the stage setting of deregulation.1.2 PURPOSE OF THE S TUDYThe purpose of this study is to esteem the deregulation exercise that was carried out in the Nigerian downstream oil and gas industry. The item aim of this study are as follows To examine the murder of deregulation policy in the downstream oil and gas industry in order to determine the effects, challenges and prospects. This study is also aimed to look if deregulation has really yielded the desired result in terms of the forces of demand and supply determining prices of product. This study further uses the Porters five model to establish if effective strategic management (innovative management and competitive forces) can achieve a sustained competitive advantage among industry competitors in the deregu previous(a)d regime.1.2 relevance OF THE STUDYThis study is relevant in many ways isolated from the downstream sector importance in Nigeria economic stability other relevance includes the following As already stated, this study would use a Porters five competitive forces to analyse the attractiveness of the industry. This will inform us of the impact of deregulation on new entrants, competitive rivalry, buyers bargaining powers, suppliers power, products prices, product supply and distribution. The study would conduct a survey to know the feelings of Nigerians on the effects, challenges and prospects of the deregulation of the downstream industry. The study would also contribute to actual literature on deregulation thereby providing insight of current developments in the downstream oil and gas industry in Nigeria. Furthermore, the study would also coiffure as an important tool for students, academia, institutions and individuals to consult for knowledge on deregulation of the downstream sector of the Nigerian oil and gas industry.1.3 RESEARCH QUESTIONSIn finding out the effects, challenges and prospects of the deregulation of downstream oil and gas industry in Nigeria, this study answers three questions How can government change the implementation of the deregulation of the downstream oil and gas industry to achieve the actual policy objective? In what way can government encourage the private sector to fully participate in the downstream oil and gas deregulation exercise? What informed the government deregulation of the downstream oil and gas industry and if it is the only solution in an economic environment such as Nigeria?1.4 ORGANISATION OF THE STUDYThis study contains 6 chapters. The first chapter is the introduction and background of the study, the purpose of the research, significance of the study, the objectives of the study, the research questions, this would croak the study. Chapter two would present the literature review on the subject matter. Chapter three gives the theoretical framework of the study. The methodology to be adopted in the study would be stated in chapter four. Chapter five focuses on the presentation of data, analysis of collected data, findings and discussion of results. The last chapter which i s chapter six, would present the conclusion and appropriate recommendations.CHAPTER deuce2.0 LITERATURE REVIEWMany existing literature have argued on different perspectives and motives for the government deregulation of the oil and gas sector in Nigeria yielding different opinions from two school of thought. The opposing and the supporting assemblage respectively. Those supporting deregulation argue that deregulation of the downstream oil and gas industry would actualize government move to eradicate fuel scarcity and ensure constant fuel supply across the country Funsho (2004). Similarly, deregulation of the industry would create inflow of foreign investment while persistent smuggling of petroleum products and inefficiencies in the sector will be eliminated Oluwole (2004). They also posit that Nigeria has the lowest price of petroleum products in the world and with deregulation the international market equilibrium would allow government to channel bullion to other sectors of the e conomy. Furthermore, they argued that it would break the monopoly enjoyed by the Nigerian National Petroleum green goddess (NNPC) Okafor (2004).Essentially, deregulation would lead to uninterrupted operation of the refineries, it would also guarantee staunch supply by enabling stakeholders and independent marketers to participate in product importation and marketing Enemoh (2004). Their view is also that the regulated regime by way of reward is a way of government enriching few Nigerian petroleum products marketers Oluwole (2004). Findings from Abu (2012) indicates that Nigerians believes deregulation and privatization will usher in sustainable development and would be a blessing rather than a course. Odey (2011) recommends the complete deregulation of the downstream sector to reduce corruption, inaccurate record keeping, inefficiency, smuggling and scrimpy product supply. Jean (2012) suggested that making deregulation work involves providing an enabling environment and framewor k for efficient production, supply and distribution. Braide (2003) recommends that the rough-cut business as usual in the NNPC by way of product importation and distribution is inexpedient because it represents a wrong step for government to continue with preferably government should fully deregulate the downstream oil and gas sector.From the opposing stem came the argument that the Nigeria petroleum industry must not be deregulated completely, instead government should maintain the status quo and restructure the sector to improve efficiency for the overall national have-to doe with. They opined that the root cause and clamour for deregulation is because of the monumental corruption in the sector and therefore should be tackled rather than embarking on deregulation. They further argued that deregulation helps increase profit margin for the importers, interestingly this is the position of the labour union and the workd civil society. Furthermore, Amana and Amana (2011) asserts that the fair distribution of economic benefits derived from petroleum has proven elusive and therefore predicts similar for deregulation. Ibanga (2011) argued that removal of subsidy may cause dislocation to the gas price because of high demand and inadequate supply. Bafor (2001) doubted government sustaining the gain of deregulation due to the undue commotion in NNPC affair resulting to near collapse and dismal performance which boost the clamour for the privatisation and deregulation.According to Kikeri and Nellis (2004) they argued that deregulation processes and institutions must be combined with appropriate competition policies and regulatory frameworks without which the gains of deregulation can be eroded by harsh impact on consumers and the overall economy affected due to inadequate product supply. Matthew and Fidelis (2003) opined that the merit of deregulation can only be enjoyed by Nigerians if only they could be genuine attention to eliminating corruption in the se ctor. Adagba, Ugwu and Eme (2012) posits that government is merely taxing the poor to subsidise the life of the rich.Similarly, Akpanuko and Ayandele (2012) argues that government is not transparent in its drive to transform the economy and suggested decline in the cost of governance, rehabilitating the refineries as a measure to drive the economy.In global perspective, the theoretical argument behind the large scale deregulation reforms initiated in the late 1970s is two-fold. On one hand, deregulation reduces the rents that regulation creates for workers, incumbent producers, and service providers. This view has gained a widespread popularity among academics and policy makers ever since the works by Stigler (1971) Posner (1975) and Peltzman (1976) contributed to the understanding of the political economy of regulation. On the other hand, deregulation allows the newly created competition on product, labour and capital markets to determine the winner of rent transfers. Thus, by spu rring productivity and efficiency gains Winston, (1993), economic deregulation ultimately contributes to the overall increase in economic growth.The surplus growth is brought primarily through increased employment and real proceeds Blanchard Giavazzi (2003), which impacts some(prenominal) production and consumption and through increased investment Alesina, Ardagna, Nicoletti, Schiantarelli (2005), this affects the capital stock in the economy. However, a need for caution is required on the recent take on the efficiency gains from deregulation in the developing world. The key argument in this new area of literature is that deregulation reforms influence diverse economies differently, depending on their position on the technology level and on their quality of institutions. For example, Acemoglu, Aghion and Zilibotti (2006) claim that certain restrictions on competition may benefit the technologically backward countries, while Estache and Wren-Lewis (2009) finds that ideal regulat ory policies in developed and in developing countries are different because of differences in the overall institutional quality in those countries.In tallyition, Aghion, Alesina and Trebbi (2007) use industry level data to demonstrate that within each economy, institutional reforms influence different industries differently, and more specifically, industries closer to the technology frontier would be affected more by deregulation and would innovate more than the backward industries in order to prevent entry. As a result, countries closer to the technology frontier would benefit more from deregulation. The alleged benefits of economic deregulation in many industries prompted a debate on the growth effects from specific types of reforms on petroleum product downstream deregulation.2.1 THEORIES OF DEREGULATIONDeregulation can be looked from the careen of different theories, we have the populace interest theory which presume that deregulation would fall out if the market deficiency which compelled regulation in the first browse were to disappear. An illustration is a change in technology which could eliminate a inhering monopoly. The open interest theory also predicts that deregulation would occur if discovered that a regulatory regime which had been perceived to be in the public interest was defective. It may turn out that, in the shadowy of experience, the cost of the regulatory apparatus is or has become greater than the harm resulting from the market imperfection it was designed to correct Posner (1974). Thus, it may become limpid only with experience that entry restrictions is a relatively costly way to enforce standards. From Stigler Peltzman came the version of the modified interest theory which suggests that a bod of factors which may give rise to deregulation.First, a reduction in the cost consumers must incur in order to inform themselves regarding the effect of regulation on them. For example, price comparisons between regulated and non-regu lated controls can assist consumers in estimating the effect of regulation on the prices they pay. Secondly, as product substitutes increases between regulated and non-regulated products, this would reduce profits and hence the urge to lobby for regulation induce price increases. Substitution may also occur between regulated and unregulated industries or between regulated and unregulated controls. Thirdly, a change in industry structure can reduce either the bonus or the ability to lobby for regulation.Also, an increase in the number of firms in an industry or a merging of their respective interests may increase the incentive to free ride and make it more costly to organize support for politicians promising regulatory benefits Stigler (1974). Noll and Owen (1983) argue that, over time, the beneficiaries of regulation will grow while groups that lose will contract. In view of the interest group structure, alternative for substitutes and information, McCormick et al. (1984) twist two reasons why the incentive to regulate is greater than the incentive to deregulate. The first is that the cost of seeking regulation may be as much as the present value of the judge wealth transfer involved, and if this cost is sunk it is not recoverable in the event of deregulation.The question is does Nigeria have a theory of deregulation? although the public and special interest theories of deregulation had slightly been criticized for the vagueness regarding transactions in policy frameworks and political markets. In the case of Nigeria the evidence on deregulation supports both the public and special interest theories. The two of them are in the same range, deregulation is used by government to effect wealth transfers through privatization. These transfers may benefit the highly concentrated special interest groups, such as petroleum product marketers and politicians. They may also benefit bigger groups, like the deregulation of telecom industry. For the public interest group, government most times come up with reforms and policy frame work aimed at benefiting the masses, but often hijacked by the cabals who may want to exploit government programme to their own benefit. An example is the issue of oil subsidy which the authorized government intention was for public interest, but was later hijacked by special interest groups or cabals.2.2 COUNTRY EXPERIENCES ON DEREGULATION2.2.1 ARGENTINAThe Menem judicatory introduced deregulation in Argentina. The country underwent heavy economic deregulation, privatization and had a wintry exchange rate between (1989-1999). The resulting effects of Argentina deregulation exercise lead to the comparing of Enron with Argentina by Krugman (2001), asserting that they were both experiencing economic collapse due to excessive deregulation. However the claim by Krugman was termed as confusing correlation with causation, as neither the collapse was due to excessive deregulation Herbert (2002). He argued that if deregulation of the Argentine economy produced prosperity for years, how could it generate collapse within a few months? The answer is not deregulation but excessive loans.2.2.2 AUSTRALIADeregulation in Australia commenced with the Minimum Effective linguistic rule in 1986 following the announcement by the labor Prime minister of religion Bob Hawke of a wide range of deregulatory policies. The introduction of the policy, which is now a familiar requirements for regulatory impact statements, took many years for governmental agencies to consent with. Although wider competition policy reforms had commenced, during the 1980s trade policy reform which advantageously increased competition in the domestic economy Smith (2001). In this regard the level of assistance to manufacturing sector was reduced from 25 share to 15 percent of the value of manufacturing output between 1981-82 and 1991-92. They was reductions in import barriers, which off course exposed many industries to the rigours of intern ational competition, providing increased incentives to improve product quality, costs and innovation.2.2.3 CANADAThe deregulation of inherent gas in Canada took calculate in the mid 1980s, with exception of Atlantic provinces, Vancouver Island and Medicine Hat, the whole of the country indispensable gas was deregulated. A price comparison service is operating(a) in some of these jurisdictions, particularly Ontario, Alberta and BC. The other provinces are small markets and have not attracted suppliers. Customers have the choice of purchasing from a local distribution company (LDC) or a deregulated supplier. In most provinces the LDC is not allowed to offer a term contract, just a variable price based on the spot market. LDC prices are changed either monthly or quarterly.2.2.4 linked KINGDOMThe conservative government of Margaret Thatcher started a program of deregulation and privatization in 1979, where the conservative government criticised many public enterprises, including CEG B, for being too inflexible, bureaucratic and out of political control. As a remedy the government suggested deregulation and privatisation Foster (1993) Newbery and Green (1996). In response, the policy framework was enacted which included the bear coach Transport Act 1980, British Telecom 1984, privatization of London bus topology services 1984, local bus services Transport Acts 1985 and the railways 1993. The common feature of all the privatisations was the offering of the shares to the general public. In support of the policy since 1997 the Labour governments of Tony Blair and Gordon Brown developed a programme of better deregulation. This included a general programme for government departments to review, simplify or abolish their existing regulations, and introduced approach to new regulations.2.2.5 NEW ZEALANDThe New Zealand governments adopted policies of extensive deregulation from 1984 to 1995. Originally initiated by the Fourth Labour Government of New Zealand Dalziel ( 2010). The close of the policy was liberalising the economy and had a comprehensive coverage and innovations. The major specific polices included establishing an independent reserve bank floating the exchange rate public sector finance reform based on accumulation accounting performance contracts for senior civil servants tax neutrality subsidy-free kitchen-gardening and industry neutral competition regulation. The introduction led to Economic growth in 1991. New Zealand was changed from a somewhat closed and centrally controlled economy to one of the most open economies in the OECD Evans, Grimes, Wilkinson (1996).2.2.6 UNITED STATESMany industries in the United States became regulated by the federal government in the late 19th and early 20th century. Entry to some markets was restricted to capture and protect the initial investment of private companies into infrastructure to provide public services, such as water, electric and communications utilities. However in the 1970s amon g the problems that encouraged deregulation was the way in which the regulated industries often controlled the government regulatory agencies, using them to serve the industries interests. In the energy industry the parking brake Petroleum Act was a regulating law, consisting of a mix of regulations and deregulation, which passed in response to OPEC price hikes and domestic price controls which effected the 1973 oil crisis in the United States. After adoption of this federal economy, numerous state legislation known as Natural Gas Choice programs have sprung up in several states which allow residential and small volume natural gas users to comparison purchase from natural gas suppliers, aside with handed-down utility companies.2.3 CONCEPT OF DEREGULATIONDeregulation refers to a situation whereby they is a restrictive use of the states legal power to direct the conduct of private actors Stigler (1971). Deregulation programme is focused primarily on the withdrawal of economic inter est of government apparatus. It is also the reduction of government regulation of business, consumers and market activity Economic glossary (2013). Similarly deregulation according to Webster dictionary is the act or process of removing state deregulations, it is the opposite of regulation which implies the process of government regulating certain activities. In the perspective of Kimberly (2013) deregulation is when the government seeks to allow more competition in an industry that allows near-monopolies. From the view of Ernest and unripened (1988) deregulation and privatization are elements of economic reform programmes charge with the goal of modify the overall economy in a structured process.Essentially in an economic perspective deregulation implies freedom from government control exculpatory and Charles (2011), while Akinwumi et al (2005) asserts that deregulation is the removal of government interference in running a system. By implication, the normal regulatory rules an d enforcement in managing the operation of a system is replaced with market force of demand and supply to be a determinant of price Ajayi and Ekundayo (2008). In the opinion of Wolak (2005) he sees deregulation as the removal of control by government on natural monopolies in order to exercise market power. Where for example in US regulation generally held natural monopolies to a specified rate of turn back basis for pricing products Rothwell and Gomez (2003). Deregulation introduced free market principles and competition into these natural monopolies Hirsch (1999) Kahn (2004) Novarro and Shames (2003) Rassenti, Smith and Wilson (2002) and created the frame breaking changes.The deregulation of downstream oil and gas industry is the loosening of government control over the industry. It is a way of breaking the monopoly in NNPC in order to pave way for healthy competition. This implies the introduction of free market system, where the forces of demand and supply are allowed to determi ne the market price of products PPPRA (2004). This formula is in contrast to the regulated regime, where government acting on existing laws controls and determine retail and wholesale prices of petroleum products. A regulated regime is characterised by low level of competition and investment leading to distortions in product supply and distribution, scarcity resulting to long queues, hording, smuggling and other bottlenecks such as monopolistic practices, existence of subsidy and poor maintenance of infrastructural facilities Funsho (2004). The structural framework of deregulation involves the following phases (1) repose (2) Privatization and commercialization.2.3.1 LIBERALIZATIONLiberalization refers to a relaxation of the government previous restrictions, commonly in areas of social or economic policy, in most context the process or concept is often, but not always referred to as deregulation Sullivan, Arthur, Sheffrin and Steven (2002). It is also the involvement of many partic ipants in the downstream petroleum industry PPPRA (2004). Liberalization involves removing monopoly, promoting high competitive culture in the industry, product availability, ensuring fair pricing for consumer, reviving and ensuring the efficiency of the refineries Oluwole (2004). Liberalization also ensures the removal of oil subsidy, which robs the poor to pay the rich PPPRA (2004). Liberalization is aimed to generate add