CHAPTER ONE

INTRODUCTION

Nigeria is blessed with abundant natural resources of which petroleum products are important factors in her domestic economy. According to Odularu (2008), Nigeria is the eight among the world’s oil producing countries. The Nigerian economy is heavily dependent on petroleum products, which account for over 95 percent of export earnings and about 85 percent of government revenues (World Bank Report, 2010). Petrol or Premium Motor Spirit (PMS), Diesel and Kerosene are the basic products used in road transport services, manufacturing industries, power generation, household cooking and private vehicles.

The frequent and incessant price changes (price hike) of petroleum products in Nigeria have been a source of worry, contention and many a times controversy. Olorunfemi (2010) stated that various Nigerian governments increased fuel prices more-than ten (10) times, between the year 2000 and 2012 period when prices were adjusted sometimes twice a year.

In spite of the four refineries situated in Port Harcourt, Warri and Kaduna, and storage depots located strategically at different parts of the country, yet on various occasions, many Nigerians still experienced fuel shortages. It is a fact that during the fuel shortages, the economic and administrative life of the nation becomes disturbed and almost disrupted. The prices of food stuff skyrocketed as transportation fare rose, farmers had to pay more for transporting their goods and services to the market. Most Nigerians found it difficult to obtain fuel at the filling stations, if they open at all. Others resorted to purchasing fuel at exorbitant “Black Market” prices. Many Nigerians have advanced different reasons for fuel shortages in the country. Some suggested that the constant and incessant price hike by successive governments was the problem. Other people believe that the pipelines and product marketing company (PPMC) was not doing well in products distribution. Another reason given for the problem was that some oil companies, independent marketers and other petroleum dealers, fuel haulage contractors, filling station owners and tanker drivers were too greedy and allegedly capitalized on the period of scarcity of fuel to sell at higher prices.

The adverse effect of pipeline vandalization according to PPMC induce shortages of petroleum products, because of the damage inflicted on the pipeline system which made it was unsafe to pump petroleum product through the lines. As a result, more products were moved by trucks. Distribution by trucks was very costly and also much slower. For example, a large volume of products could easily be pumped within hours from Lagos to Maiduguri, but many trucks will take some days carrying less volume to reach the same destination. This slow movement coupled with the limited quantity transportable through tankers, PPMC argued, create shortages, which breeds black marketing forcing consumers to pay exorbitant prices.

The federal government on its own part claimed that the existence of subsidy is the major course of price instability and problems of distribution of petroleum in Nigeria. That the selling price of petrol (PMS) per litre is below the cost of production, distribution and the allowable profit margins. Therefore the subsidy element is the difference which the government bears.

The marketing aspect of petroleum products goes beyond production and refining, because pricing policy and effective distribution play a key role in products availability, market stabilization and consumer satisfaction in general. However, some authors like Soylas and Sari (2006) argue that a casual relationship existed between the two marketing mix elements: price and distribution; since they are both factors of demand and supply and one of them on the supply side distribution is influenced by price elasticity. Previous researchers on related topics like Henry and Orhenwere (2006), Ogunbodede, Ilesanmi and Olurankinsa (2010) and Arenze (2011), have focused on different combination of such variables like price changes and its effect on inflation, unemployment or Gross Domestic Product (GDP). It has therefore become imperative for the researcher to find out the effect of constant price changes of petroleum products on distribution in Gwagwalada.

On various occasions in the period under review: (2000 to 2012), Gwagwalada Area Council have experienced frequent scarcity and acute shortages of fuel. The major problem was that some of the petroleum products, especially the premium motor spirit (PMS) were very limited in the market it hardly reach the final consumers. Therefore, motorists spent hours, sometimes days queuing at the filling stations. Most motor parks were empty; offices were closed as people moved out in search of fuel. Travellers’ and inhabitants of towns and cities found it difficult to get transport services to different destinations. Therefore, there is need to explain why Nigeria, which is one of the world major producers of oil and which has four (4) refineries and 17 main oil deports strategically located across the country for easy distribution should frequently experience shortages throughout the country. 

1.1 Statement of the Problem

On various occasions in the period under review: (2000 to 2012), Gwagwalada Area Council have experienced frequent scarcity and acute shortages of fuel. The major problem was that some of the petroleum products, especially the premium motor spirit (PMS) were very limited in the market it hardly reach the final consumers. Therefore, motorists spent hours, sometimes days queuing at the filling stations. Most motor parks were empty; offices were closed as people moved out in search of fuel. Travellers’ and inhabitants of towns and cities found it difficult to get transport services to different destinations. Therefore, there is need to explain why Nigeria, which is one of the world major producers of oil and which has four (4) refineries and 17 main oil deports strategically located across the country for easy distribution should frequently experience shortages throughout the country. Nigeria seems to be a society that is constantly in petroleum scarcity crises. It is regrettable that in the nation nothing follows the normal pattern; petroleum products prices are arbitrarily increased several times in a short period and each time government has given flimsy reasons for the upward adjustment (Dike, 2011). However, the leaders do not seem to realize some of the distributive consequences of the constant petroleum price hikes in the nation that has for sometimes now been experiencing decay of infrastructure, high crime rate, poverty and weak economy. Many studies like Raymond (2010), Ehinomeri and Adeleke (2012) and others were carried out to investigate the implication of the effect of petroleum price changes on different variables such as the effect of price hike on poverty, on economic development, on inflation and many other variables. This study focused on investigation of the effect of price changes of premium motor spirit (PMS) on supply and distribution of petroleum products in Nigeria, the effect on the cost of distribution of other commodities including agricultural products, the emergence of ‘’black market prices’’ and long queues at filling stations.

1.2 Objectives of the Study

i.         To examine whether the constant increase of fuel prices causes a fluctuation to supply and distribution of petroleum products in Nigeria;

ii.        To find out if the price hike of PMS leads to increase in cost of distribution of other commodities including agricultural products;

iii.      To identify the relationship between price increase of PMS and the development of “Black Market Prices” and ,long queues at filling stations across Nigeria; and

iv. To examine the effects of petroleum products price hike on some macroeconomic variables such as inflation, unemployment, poverty and social unrest.

1.3 Research Questions

i.         What is the constant increase of fuel prices causes a fluctuation to supply and distribution of petroleum products in Nigeria?

ii.        What is the price hike of PMS leads to increase in cost of distribution of other commodities including agricultural products?

iii.      What is the relationship between price increase of PMS and the development of “Black Market Prices” and, long queues at filling stations across Nigeria?

iv.                   What are the effects of petroleum products price hike on some macroeconomic variables such as inflation, unemployment, poverty and social unrest?

    1.4 Hypothesis Testing

Four hypotheses are formulated and tested in this study:

            : Price changes do not cause fluctuation to supply and distribution of petroleum products in Gwagwalada.

: Price increase of PMS does not lead to increase in cost of distribution of other commodities including agricultural products 

: There is no relationship between price increase and the emergence of “Black Market” and long queues at filling stations across Nigeria.

   : There is no significant effect of changes in prices of petroleum products in Nigeria on macroeconomic variables like unemployment, poverty, inflation and social unrest. 

1.5 Significance of Study

  The study will be important to different sectors of Nigeria especially the petroleum sector and government energy parastatal in decision making and strategic equitable distribution of petroleum in the Nigeria economy.

The study will also help eradicate the hike in the price of petrol  by the informal sector( black market)

The study will also contribute to existing knowledge since no much work has been done on this topic.

1.6 Scope of the Study

The study will be to assess the impact of fuel hoarding on informal marketing sector (black marketing) of Nigeria with reference to fuel sellers in Gwagwalada, FCT, Abuja. The study includes some major filling stations in Gwagwalada and motorist in the study area.

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