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POLITICAL ECONOMY OF FUEL IMPORTATION AND DEVELOPMENT OF REFINERIES IN NIGERIA, 1999-2013

Abstract

The contradictions of importing over US$10 billion fuel annually for domestic consumption, in the midst of abundant oil endowment, has attracted attention and concern from researchers and investigators. This study, therefore, set out to evaluate the effects of the political economy of fuel importation on the development of refineries in Nigeria between 1999 and 2013. It set as its objectives the task of interrogating the nexus between allocation of fuel import licenses to independent marketers and investors in the development of new refineries in Nigeria; the connections between fuel importation probes and the challenges hindering the development of new refineries in Nigeria; and the relationship between expatriates’ dominance of fuel importation and distribution, and the integration of Research and Development (R&D) in Nigeria’s petroleum technology development. The study adopted the political economy theoretical framework of analysis.

CHAPTER ONE

INTRODUCTION

1.1   Background of the study

Nigeria’s last two decades produced the template that leads to its fuel import-dependent and single-resource economy in the midst of abundant oil endowments. Nigeria depends 85 per cent and above on the importation of petroleum products (Chikwem, 2014; Nwachuku, 2012), with massive infusion of subsidies introduced in 1973 to stabilise the price of fuel and insulate Nigerians from the wild fluctuation of global market price. Ploch (2013, p. 9) observed that ‘Nigeria imports an estimated $10 billion of fuel annually for domestic consumption.’ In 2012, ‘Nigeria consumed 270,000bbl/d and in 2013, she imported slightly more than 84,000bbl/d of petroleum product’ (US Energy Information Administration, 2013, p. 13).

Unfortunately, fuel importation/fuel import licences to independent marketers have been subjected to favouritism, prebendalism and clientelism, recycled among the dominant class, with the consequences of discouraging investors in the development of new refineries in the downstream oil sector of Nigeria. This throws up a fuel import ‘cabal’ that has a vice grip of fuel importation. Boyo (2015, p. 44) observed that this group of businessmen would do everything to ensure that refineries will never work, and that the subsidy regime would subsist, while fuel supply will continue to be carefully manipulated to regularly induce artificial scarcity so that bountiful profit can be harvested from the attendant sufferings and economic dislocation deliberately caused by the oil cabal. This ugly situation persisted for a long time and subsequently led to a public outcry that precipitated to the enactment of different fuel importation probes in the downstream oil and gas sector of Nigeria. These probes are the report of the audit of the importation of fuel commission by Nigeria National Petroleum Cooperation (NPPC) in 2008; the report of Nigeria Extractive Industries Transparency Initiative (NEITI) 1999–2004, 2005, 2006–2008 and 2009–2011; the report of the audit of the NNPC by KPMG Professional Services which exposed fuel subsidy scam submitted to the presidency on 22 November 2010 and the report of the House of Representatives Ad-hoc Committee tagged Resolution No. (HR.1/2012) on fuel subsidy probe that exposed different subsidy scams. In fact, all these probes showed that Nigeria has subsidised fuel importation more between 1999 and 2013 than the past 35 years before 1999. Also, a parliamentary probe on 18 April 2012 found that ‘graft in the fuel subsidy scheme cost Nigeria $6.8 billion between 2009 and 2011’ (Agande, 2012, p. 5) Hence, these probes unravelled that Nigeria’s oil sector is utilized as a conduit for patronage and Cronyism, such that allocation of oil blocs and appointment as fuel importers/marketers are seen as spoils of office freely deployed by successive Nigerian governments to facilitate unbridled and mindless looting of the nation’s resources. (Oluwajuyitan, 2011, p. 2) In this light, this study investigates the political economy of fuel importation probes and the development of refineries in Nigeria between 1999 and May 2015. Following this introduction, the theorising Marxist political economy of the state, the nature and dimensions of fuel importation probes in Nigeria, the fuel importation probes and identified challenges in the development of refineries and  law enforcement agencies and the prosecution of oil marketers/companies on fuel fraud have been presented in sections two, three, four and five, respectively.  Oil has remained the major source of foreign exchange earning in Nigeria since its discovery in large scale in Oloibiri in 1958. It is imperative to state that agriculture which used to employ 75% of the Nigerian population and contribute over 80% to GDP, was later relegated for oil (Akov, 2015:395). Nigeria remains the world’s 14th largest producer of crude oil and 10th in gas. Nigeria has four petroleum refineries, two of which are located in Port Harcourt, one each in Kaduna and Warri with a combined installed capacity of 445,000 barrels per day including a large network of pipelines and depots strategically located (Onuegbu, 2015:2). Yet, these refineries are said to be operating about 26% capacity utilisation due largely to what Onuegbu (2015) described as political interference in the management of the nation’s refineries and the preposterous lack of crude to refine. The resultant effect, therefore, is that Nigeria now largely exports crude oil and gas through the Nigerian National Petroleum Corporation (NNPC) and the Nigeria Liquefied Natural Gas Limited (NLNG) for her foreign exchange earnings and depends on importation of refined petroleum products for consumption by her teeming population. Nigeria’s daily consumption 40 million litres of petroleum products (premium motor spirit) far outweighs daily production of all the five refineries, resulting in over dependence on imported refined products. This has worsened and depleted Nigeria’s foreign reserves since the return of democracy in Nigeria in 1999. There is no doubt that despite the enormity of the country’s wealth in both crude oil and gas reserves, Nigerian citizens have continued to wallow not only in poverty but in perennial scarcity of petroleum products occasioned by arbitrary price increases by over ambitious petroleum marketers. These situations have persisted in the country over the years in spite of measures adopted by successive governments to cushion the effects by way of subsidy.

1.2      STATEMENT OF THE PROBLEM

Nigeria is the largest producer of crude oil in Africa and 10th largest in the world with 37.07 billion barrels of proven oil reserves (WorldAtlas, 2017). In 2015, crude oil production in the country reached a peak rate of 2.7 million barrels per day. For natural gas, Nigeria also has the largest reserve of natural gas in Africa and 7th largest in the world, estimated at 188 trillion cubic feet (The Guardian, 2017). The oil and gas industry is traditionally divided into 3 major sectors, namely: the upstream sector, the midstream sector, and the downstream sector. The upstream sector comprises of crude oil exploration and production into terminal tanks, the mid-stream sector handles the transportation of produced crude oil to refineries. It is in view of the above that the researcher intends to investigate the effect of political economy of fuel importation and fuel importation and development of refineries in Nigeria from 1999-2013.

1.3      OBJECTIVES OF THE STUDY

The main objective of this study is to investigate the role of political economy of fuel importation and development of refineries in Nigeria. But to aid the successful completion of the study the researcher intends to achieve the following specific objectives

i)  To ascertain the role of fuel importation on the economic growth of Nigeria.

ii)  To investigate the role of politics in development of indigenous refineries.

iii)  To ascertain the impact of subsidy on importation of PMS  and availability of the product.

iv)  To ascertain if there is any relationship between political economy and refineries development.

1.4      RESEARCH HYPOTHESES

To aid the successful completion of the study the following research hypotheses were formulated by the researcher;

H0: the importation of fuel does not play any role on the economic growth of Nigeria’s economy

Hi: the importation of fuel does play a role on the economic growth of Nigeria’s economy

H02: there is no significant relationship between political economy and development of refineries in Nigeria

Hi: there is a significant relationship between political economy and development of refineries in Nigeria

1.5      SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study, the findings will be of great importance to the management of NNPC Nigerian national petroleum corporation on the management of fuel importation and it effect on economic growth in Nigeria, the study will also be of great importance to the Honorable minister of petroleum in formulating policies that will aid the development of indigenous refineries in Nigeria, the study will also be of importance to researchers who intend to embark on a study in a similar topic as the study will serve as a reference point for further research, the study will also be useful to students, teachers, lecturer and the general public as the study will add to the pool of knowledge.

1.6      SCOPE AND LIMITATIONS OF THE STUDY

The scope of the study covers political economy of fuel importation and development of refineries in Nigeria from 1999-2013.

a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study       

b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities. 

1.7 DEFINITION OF TERMS

Politics: Politics is the process of making decisions that apply to members of a group. It refers to achieving and exercising positions of governance—organized control over a human community, particularly a state

Fuel: A fuel is any material that can be made to react with other substances so that it releases chemical or nuclear energy as heat or to be used for work.

Refinery: is a production facility composed of a group of chemical engineering unit processes and unit operations refining certain materials or converting raw material into products of value.

1.8   ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows; chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. chapter three deals on the research design and methodology adopted in the study. chapter four concentrate on the data collection and analysis and presentation of finding.  chapter five gives summary, conclusion, and recommendations made of the study.

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