CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND TO THE STUDY
There has been a relative
slow rate of growth in the Nigerian Petroleum sector for past decades
with a far reaching influence of foreign presence. It is a well known
fact that the Petroleum sector in any economy requires great amount of
technology, capital with seasoned and experienced manpower for national
development, however all of these are insufficient in the Oil and Gas
Industry and Nigeria as a whole.
As of today 2014, the Oil and
Gas industry is the mainstay of the Nation’s Economy with other sectors
of the economy relying on it to function. The nation is sustained on
revenue from oil and gas and this roughly accounts for about thirty
percent (30%) of Nation’s Gross Domestic Product (GDP)and an estimated
ninety percent (90%) of Nigeria’s foreign exchange earnings in the early
90s (Davidson, 2003).
Michael (2003) posits that the Nation’s
Petroleum Industry generated about $231billion in rents, or $1900 for
every man, woman, and child and oil has annually produced over ninety
percent (90%) of Nigeria’s export income. In the year 2000, the Nation
got over 99.5% of its export income from oil, making it the world’s most
oil-dependent country. The role of oil and gas in the Nigerian economy
cannot be downplayed as it has consistently maintained its position as
the most active, ever changing and thriving sector of the economy and
has been the mainstay of the nation’s economy since gaining independence
(Egbuna, 2004).
According to Hallowey (1994)
in every industry, challenges exist for business and sales of goods and
services irrespective of set goals. Challenges may be associated with
price fluctuations in the economy, logistics, marketing, product
transport and storage etc. The Nigerian oil and gas sector is not
totally free from these challenges in the handling and sales of
petroleum products. Just like every other sector of the oil and gas
business, distribution and marketing of products takes place on a vast
global scale. Hundreds of companies and individuals daily buy these
products from thousands of retail outlets all over the nation, with
number of consumers running into millions.
The Nigerian National Petroleum Corporation (NNPC)markets refined products like:
- Premium Motor Spirit (P.M.S.)
- Low Power Fuel Oil (L.P.F.O.)
- Dual Purpose Kerosene (D.P.K.)
- High Power Fuel Oil (H.P.FO.)
- Lubricating Oil.
- Cooking Gas etc.
Petroleum products are
marketed by indigenous and multinational oil companies like Total Fina
Elf, Exxon Mobil, Agip National Oil, African Petroleum, Oandoetc.
Notwithstanding government best efforts at improving petroleum products
distribution and retail marketing, challenges of insufficient and
irregular product distribution among others still besiege petroleum
product marketing in the country with the situation getting worse with
the recent premium motor spirit (PMS) subsidy removal.
This gave rise to influx of
independent marketers into the scene as a way to proffer solutions to
the numerous challenges and help stem the tide of inadequate petroleum
products availability, distribution and marketing in the country.
Independent marketers were given rights to play their part in the sector
so as to bridge the gap created by distribution logistics and improve
standard of living of Nigerians, this was a welcome development because
products distribution in the country had been epileptic and unreliable
until the independent marketers’ appearance on the scene.
Shortage of petroleum
products experienced in the country in the early 70s was attributable to
paucity of distribution network. The government of the day responded to
these problems in two ways:
- Encouraged well meaning citizens to invest in petroleum products
marketing business and build more depots to bridge gaps created by
transportation deficit,
- Promulgated laws and empowered various security agencies to tackle
and control oil theft and pipeline vandalization with the setting up of
various task forces to make sure petroleum products reach designated
location without being hijacked or diverted.
This research work is
concerned mainly with retail marketing of specific petroleum products
such as diesel, kerosene, premium motor spirit, gasoline and domestic
gascommonly used in domestic and socio-economic settings more than any
other product of petroleum (crude oil).
1.2 STATEMENT OF THE PROBLEM
Participatory and regulatory
rates of government to stabilize marketing of petroleum products have
yielded good results but its resultant effects to equate demand with
supply of these products have been unsuccessful with pattern of
distribution constantly in the forefront of continuous discourse and
debate, since diesel, kerosene, gasoline are described as one of the
bedrocks of the Nigerian economy.
Challenges however still exist in product distribution and marketing in the nation with cases such as;
Inaccessible depot location:
many towns and villages find it difficult to get supply of petroleum
products due to distance between supply source and their location
creating a false sense of unavailability of products in form of an acute
shortage.
Despite best of efforts made
to avoid problems, numerous challenges still plaque product
distribution and marketing such as transportation difficulties in moving
products safely and quickly to point of need occasioned by deplorable
road conditions and lack of railway or cargo movement systems, unending electricity failures, lack
of adequate storage facility with very low and poor refining capacity
of refineries,finance inadequacy and improper funding, poor distribution
channels etc. Recently, these challenges became more apparent as
occasioned by the surge in crime wave in the country in form of oil
theft and pipeline vandalism, militancy in the oil producing states with
massive destruction of existing infrastructure, inflation rates in the
struggling economy, incessant strike action by petroleum sector workers;
paucity of adequate equipments occasioned by lack of maintenance
cultureetc.
Becauseof excessive usage
and increased demand for petroleum products during festive periods,
demand exceeds supply leading to acute shortage and scarcity with some
retailers cashing in on the opportunity to make more cash by hiking fuel
prices, hoarding of products etc. which leads to long queues at filling
stations across the nation.
Various studies conducted
have shed light on the way in which these challenges affect the retail
marketing and distribution of petroleum products but no specific study
has been carried out on retail marketing of petroleum products commonly
used such as kerosene, gasoline and diesel. This study is therefore
focused on identifying challenges of retail marketing of the petroleum
products under reference with the aim of proffering possible solutions.
1.3 RESEARCH QUESTIONS
The purpose of this study is to determine the
associated problems in the Nigerian petroleum retail market. Based on
the purpose of the research stated above, the following research
questions have been formulated:
(1) What are the problems associated with Nigerian petroleum retail market?
(2) How does irregular supply of petroleum products affect the economy of Nigeria?
(3) To what extent does transportation affect petroleum retail market in the county?
(4) To what
extent does a good distribution channel enhance petroleum retail market
and sustain economic activities in the country?
1.4 RESEARCH AIM AND OBJECTIVES
Despite acclaimed progress
made in management of marketing and distribution of petroleum products,
the maximum potential of the industry is below standard with its
operation at low level capacity. Due to these shortcomings, the industry
is far from realizing set goals and objectives in the nation’s economy.
This unfulfilled mission is apparent with the most apparent problem
being the ineffectual retail marketing and distribution of petroleum
products in Nigeria.
This study therefore aims at
identifying challenges in the retail marketing of petroleum products
with an attempt to proffer solutions to such problems by looking
critically at activities involved.
The following objectives are stated:
(1) Determining factors that influence policy on establishment of petroleum retail outlets in Nigeria.
(2) The adequacy of distribution channels in the country.
(3) Studying the policies of various marketing firms in granting franchise rights to set-up outlets.
(4) Analyze specific activities of various dealers,identify their challenges and determine their role as it relates to products scarcity and availability.
1.5 SIGNIFICANCE OF STUDY
The significance of this study is stems from the fact that the petroleum industry is the bedrock of our economy.
Therefore the economic
importance of petroleum retail market attracts the attention of
government bodies, institutions, general public, international oil
companies as well as independent marketers.
The information generated by
this study would help the government carry out a more purposeful and
result oriented planning; evaluation and control of the petroleum
industry with the aim of enhancing its contribution in improving the
Nigerian economy.
Benefits derivable from this research work by the researchers and the consuming public points to the significance of the study.
(1) This work is Associated Problems in petroleum retail marketing in Nigeria
(2) The work will
further expose the researcher to problems militating against retail
marketing petroleum products in Nigeria and possible ways to ameliorate
these problems.
(3) For the producers,
this study will educate them on their perception of end users of
petroleum products, pricing policy, distribution network effectiveness
and the need to improve on product distribution logistics.
(4) Dealers and oil
companies through this study findings will know consumers needs in terms
of services offered and product availability as at when required.