FUEL SUBSIDY REMOVAL AND NATIONAL DEVELOPMENT IN NIGERIA: 1999 – 2012

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ABSTRACT

This study was intended to examine Type your Project Topic Here with your case study (If any). This study was guided by the following objectives; Type the objectives in chapter one here. The study employed the descriptive and explanatory design; questionnaires in addition to library research were applied in order to collect data. Primary and secondary data sources were used and data was analyzed using the chi square statistical tool at 5% level of significance which was presented in frequency tables and percentage. The study findings revealed that type one hypothesis here (If any), Otherwise, delete this line.

CHAPTER ONE

INTRODUCTION

 Background of the Study

Subsidy has been defined as aids directly granted by government to an individual or private commercial enterprise deemed beneficial to the public. It is also a grant or gift of money from a government to a private company, organization, or charity to help it function. In relation to fuel in Nigeria, it means the financial aid granted to autonomous and foremost oil marketers by the government for them to supply their products at a cheaper rate for the good of the masses. This move is almost always aimed at boosting the economy of a country, providing social amenities for the people, stabilizing the market, creating employment opportunities and of course the assumption by the government that it is capable of fighting corruption. The Nigeria Extractive Industries Transparency Initiative (NEITI, 2011) notes that the issue of subsidy is not alien to the nation’s blood stream because it existed during the military regime when the four refineries of the nation could only produce little which could not even satisfy the domestic needs of the people.

Subsidy, in economic sense, exists when consumers of a given commodity are assisted by the government to pay less than the prevailing market price. In relation to fuel subsidy, it means that consumers would pay less than the pump price per litre of products.

More so, fuel subsidy could be described as the difference between the actual market price of petroleum products per litre and what the final consumers pay for those same products. Indeed, developing countries have used petroleum products or fuel subsidies for consumers primarily as a means of achieving certain social, economic, and environmental objectives, as identified by Bazilian and Onyeji, (2012). These include alleviating energy poverty and improving equity, increasing domestic supply, national resource wealth redistribution, correction of externalities and controlling inflation. Subsidies were introduced in the Nigerian petroleum sector in the mid 1980’s. Something of a creeping phenomenon, the value of the subsidies has gone from 1 billion Naira in the 1980s to an expected 6 billion Dollars in 2011. Nigeria is a country endowed with vast mineral resources prominent among which are the oil and gas reserves. The country possesses 28% of Africa’s proven oil reserves, second only to Libya; and is the largest producer of crude oil in the region, producing 2.4 million barrels per day in 2010 which is about 24% of the continent’s petroleum (Siddig, et al, 2013). In addition, Nigeria has four refineries with an installed production capacity of 445,000 barrels of fuel per day, adequate to meet its domestic needs with a surplus for export (Explore, 2011). However, Nigeria is a large net importer of fuel and other petroleum products. In spite of efforts to revamp her economy via various reforms, which includes comprehensive non-oil export diversification initiatives, petroleum still contributes an average of 95% of the nation’s external earnings (Majekodunmi, 2013). The country increasingly relies on imported petroleum products because the existing refineries are producing below 20% of their installed capacity. In fact,the cost of importing petroleum products has risen so rapidly in recent years that the country’s capital expenditures and balance of payment are under threat (Adelabu, 2012).