The discovery of oil in commercial quantity in the 50s was welcomed with fanfare and great anticipation for a better future for the nation’s growing population. However, over the years the nation’s oil industry has been greeted with a lot controversy, the major part of which is on how the downstream oil sector can be effectively managed.
The oil and gas industry is divided into two major sectors; upstream and downstream, the upstream oil sector is associated with exploration and production, while the downstream sector includes among other things marketing and distribution of products derived from crude oil and natural gas. Deregulation on the other hand, is the process of removing or reducing government regulations, thereby allowing the forces of demand and supply to determine the prices of goods and services in line with Adam Smith’s economic belief of the unseen hands that regulates the economy.
The foremost way through which the Nigeria government regulates the oil and gas sectors of the economy is through the payment of subsidy. Subsidy is the payment made by government to marketers to enable them produce and sell at a lower price than they would otherwise. It is a situation where consumers of a particular commodity are assisted by the government to pay less than the market price of the very commodity they are consuming. The introduction of oil subsidy is one of the major problems in the nation’s oil industry, this is largely because of the fact that the rich are the major beneficiaries of the subsidy, parts of subsidy is being corned by cabals in the industry at the detriment of the masses.
Over time there has been continuous increase in petroleum prices with persistent scarcity of the product, pipeline vandalism, large scale smuggling, low capacity utilization at the refineries, in fact the events of last few weeks where a liter of petrol was sold for about N 400, has shown that the Nigeria government cannot effectively manage the oil industry.
I think the last administration of Goodluck Jonathan was right when he completely removed fuel subsidy,(but was stopped by the Occupy Nigeria Group) even though some economic experts argue that the timing was wrong considering the fact that government has not put appropriate measures in place for effective removal of subsidy. I think such decision should be revisited so as to allow both local and foreign investors to come into the nation’s oil industry. Subsidy and strict government control is a hindrance to investment in the oil industry and it profits very few persons compared to the rest of the population, come to think of it, how many cities in Nigeria buy the products at government approved price apart from Abuja, Lagos and few other states.
If subsidy is removed, government can reinvest the money that it pays to marketers to the nation’s erring industries as a means to diversify the nation’s economy. This may also stop the diversion of petroleum products by oil marketers to neighbouring countries as is currently the case where Nigeria government uses the nation’s tax payer’s money to subsidize products that will eventually be used in other countries
The major reason why there should be an efficient and effective management of the oil industry is that Nigeria is a mono-economy, meaning that any breakdown of the industry sends a heavy signal to the other sectors of the economy, for instance during the recent increase in petroleum product almost all the other commodities in the market went up, therefore this government has a heavy task to complete.
On a final note, the Northern political elites and legislators should stop politicizing the Petroleum Industry Bill (PIB), hence they must stop further alterations of its contents. The bill when passed into law can revolutionize the oil and gas sectors of the economy. Nigeria is one of the largest producers of crude oil in the world; the nation cannot afford to exist only at the level of potentials.
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