AN ANALYSIS OF THE EFFECTS OF DEREGULATION OF PETROLEUM PRICE ON NIGERIAN ECONOMY

PROPOSAL 1.1             Background to the Study The Nigerian oil industry has continued to play a significant role in the nation’s drive towards economic growth and development. The sector has become the mainstay of the economy, pivoting other sectors and accounting for about 90% of the country’s foreign exchange earnings (Aghalino , 2012). Nigeria, OPEC’s sixth largest crude oil producer, with her abundant natural resources still import and pay international prices for a natural resources it has in abundance. The Federal Government complained that the cost of subsidizing importation which was estimated to be as high as $1.5 billion annually (Ibanga, 2006) has become unbearable to sustain, and that deregulation of the downstream sector would attract investors into the oil and gas industry and provoke competition which would result in reduction in the prices of petroleum products. In recent years, deregulation of the downstream sector of the oil and gas industry has become a controversial issue in Nigeria. In 2003, the Federal government bedeviled with fiscal deficit, high external debt, unfavorable balance of payment and inability to sustain the huge subsidy for fuels announced her intention to deregulate the downstream sector of the petroleum industry (Adagba, Ugwu, & Eme, 2001). Since the announcement, Nigerians have lost count about how many times organized Labor went on strike over downstream oil deregulation policy. The government believes that subsidy for fuels distort the system, and encourages corruption; that deregulation will offer more benefits to Nigerians because the oil market will become more competitive and efficient, and the resulting benefits will be passed on to Nigerians in the form of lower product prices, better quality of service and ease as well as constant availability of the product (Yar’adua, 2009). Odidison (2003) stated that deregulation would bring sanity into the oil and gas industry since smuggling of petroleum products, vandalizatoin of pipelines and all other vices in the sector will be totally removed. According to him, domestic price of oil will increase and the smugglers being irrational are likely to reduce their activities. Consequent upon this, the neighbouring countries that rely on smuggled petroleum products would experience scarcity and as such would be forced to take the legal and normal route to buy fuel. Akinmade (2003) explained that the emergence of the private refineries will create a better maintenance culture of the refinery and this will likely reduce unemployment by employing both skilled and unskilled labour.

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