CHAPTER ONE GENERAL INTRODUCTION
- Background to the Study
There are two sectors of the Nigerian oil industry: the upstream and the downstream sectors. The concern of this research is focused on the downstream sector, which cover pricing, supply and distribution of petroleum products. In the beginning of petroleum production in Nigeria, the attention of government was focused mainly on the upstream sector of the Nigerian oil industry.1 However, due to rapid expansion in economic activities in the country after the civil war, the attention of the Federal Government was later extended to the downstream sector through the regulation of pricing, supply and distribution of petroleum products in the country. In the downstream oil sector, it is the government that set the policy of regulation in pricing, supply and distribution of petroleum products in the country.
The history of petroleum products‟ pricing can therefore be traced to the early colonial legislation called the Mineral Oils Act of 1914 that was later repealed by Military Decree No. 51.2 Some of the provisions of the Decree were later replicated into the Petroleum Act.3 Prior to 1973, petroleum product pricing was not uniform throughout the country as the pricing was under the control of domestic multinational oil companies who determined the price of petroleum products to reflect cost of refining and distribution locally.4 The cost of pump price at which a litre of petrol was sold depended on point of sale and this affected the distribution of petroleum products in the country. The Federal Government therefore took over the regulation of the downstream sector in order to encourage even distribution of products to all parts of the country through a uniform pricing system for all grades of products. In implementing the uniform price policy, the Federal Government decided to grant subsidy on petroleum products in order to allow marketers distribute petroleum products to all parts of the country without additional cost to consumers.
