Brief Sector Overview
The Oil Industry is the backbone of the Nigerian economy, accounting for over 90% of total foreign exchange revenue. The industry is divided into upstream and downstream sectors. The upstream sector is the single most important sector in the economy and involves such activities as oil exploration and production. While the Nigeria's downstream oil sector is also a key sector and the import of refined product is a core activity in this sector. The sector has been a major
problem for the country over the past years, as the NNPC has been unable to maintain the country’s refineries and provide adequate supply of P.M.S. (Premium Motor Spirit or petrol), diesel ...view middle of the document...
The government is determined to nurture private sector participation hence its licensing of private refineries and deregulation of petroleum product prices, in order to improve local capacity.
The Supply Chain
Automotive Gas oil (AGO) and Aviation Turbine Kerosene (ATK) supply chains were fully deregulated in 2003 following the Federal Government’s initiative to reduce subsidy of petroleum products. In the deregulated market; no single player has managed to achieve market dominance. Selling price in this market oscillates within a narrow pricing band and spot prices are dictated by daily movements in the international market.
PMS and DPK (Dual Purpose Kerosene) are currently regulated by the PPPRA, which determines the selling prices for the products. Product landing costs are determined by the international market; and various cost items (representing margins belonging to relevant stakeholders) are added to the landing cost before a selling price is arrived at. However, given the regulated nature of the market, the oil marketers are not allowed to sell above a certain price and the difference is refunded to them by the Federal Government as subsidy. As a result of the structure highlighted above, independent marketers must obtain the approval of the Department of Petroleum Resources to import such regulated products.
The scarcity of PMS is usually as a result of stoppage in the importation of the product by marketers to protest delayed payment of subsidy by the FGN (sometimes occasioned by audit exercise ordered by the Federal Government of Nigeria to ascertain the actual subsidy claims).