PETER JULIET PG/MBA/12/62988

THE IMPACT OF DEREGULATION ON THE STRATEGIC MANAGEMENT OF THE PETROLEUM MARKETING FIRMS IN THE NIGERIAN DOWNSTREAM SECTOR

FACULTY OF BUSINESS ADMINISTRATION

DEPARTMENT OF MANAGEMENT

Ebere omeje Digitally Signed by: Content manager’s Name

DN : CN = Webmaster’s name

O= University of Nigeria, Nsukka

OU = Innovation Centre

THE IMPACT OF DEREGULATION ON THE STRATEGIC MANAGEMENT OF THE PETROLEUM MARKETING FIRMS IN THE NIGERIAN DOWNSTREAM SECTOR

BY

PETER JULIET PG/MBA/12/62988

DEPARTMENT OF MANAGEMENT FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA ENUGU CAMPUS

FEBRUARY 2015

THE IMPACT OF DEREGULATION ON THE STRATEGIC MANAGEMENT OF THE PETROLEUM MARKETING FIRMS IN THE

NIGERIAN DOWNSTREAM SECTOR

BY

PETER JULIET PG/MBA/12/62988

A RESEARCH PROJECT SUBMITTED DEPARTMENT OF MANAGEMENT

FACULTY OF BUSINESS ADMINISTRATION UNIVERSITY OF NIGERIA

ENUGU CAMPUS

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTER OF BUSINESS ADMINISTRATION (MBA) IN

MANAGEMENT

SUPERVISOR: PROF. U. J. F. EWURUM

FEBRUARY 2015

CERTIFICATION

I, PETER JULIET a Postgraduate student in the Department of

Management, Faculty of Business Administration with Registration Number

PG/MBA/12/62988 hereby state that I have satisfactorily completed the project

for the award of Master of Business Administration (MBA) in Management.

I also state that this project report is original and has not been submitted in part

or full for this or any other degree of this or any other Institution of higher

learning.

____________________ PETER JULIET

PG/MBA/12/62988

____________________________ ________________________ PROFESSOR U. J. F. EWURUM DR. O. C. UGBAM ROJECT SUERVISOR HEAD OF DEPARTMENT

DEDICATION

This research work is dedicated to God Almighty for His abundant grace

and Blessing through out this research work, and also to my parents, brother and

sisters. Your support has been wonderful.

ACKNOWLEDGEMENTS

This research work would not have been a reality without the invaluable

support and assistance of many people. Hence, my unqualified thanks and

appreciation goes firstly to God Almighty that through His divine mercy saw to

the successful journey so far in this my stage of academic pursuit in University

of Nigeria.

Of course, this piece is so limited to accommodate all who have

contributed hut as it may, I owe unlimited thanks to my father and mother

without whom, I would not have come this far. My friends and pals. To my all I

say thanks and God’s abundant blessing and protection.

Furthermore, I remain grateful to my project supervisor professor U. J. F.

Ewurum for his adequate direction and understanding. May God bless you and

grant your heart desires. Finally, to all my course mates, roommates and pals in

school I say thank you, it’s well.

ABSTRACT

In the past decade or so, Nigerians have been traumatized by the impact of fuel crises. Lives have been lost and some productive enterprises have either gone under or operating far below optimal level as a consequence of fuel supply shortage and unpredicted high pricing associated to the mismanagement of the downstream sector of the petroleum industry. The federal government is aware of this problem and decided to appoint a committee of technocrats to chart a new mode of operating the downstream sector. The committee recommended a paradigm shift from regulation to deregulation of the downstream sector. The sector was deregulated. Until then however, very little was known about deregulation in the Nigerian economy particularly in the running of public utilities in which the petroleum industry is a foremost concern. The study examined amongst others, the nature of benefits that come from the deregulation of the sector, the process of strategic change in a new business environment by firms in the downstream sector of the petroleum industry with a view to determining the impact of deregulation on the strategic management of these firms and to ascertain the risks associated with strategic change in terms of impact on the growth of the firms. Also examined are the best practices in the global petroleum industry, an analysis of the strategies for deregulating the Nigerian downstream sector in petroleum marketing firms. The survey method was used in line with the objective of the study data were obtained form both primary and secondary sources and chi-square statistic was applied to test the hypothesis. The study reveals that collective performance hangs on the fact that their management system lacked the capacity to adjust strategically to the deregulation of the sector. Based on the findings of the study a number of recommendation believed would eliminate the hurdle on the way to successful operation of the sector were made. Conclusively, the study maintained that the deregulation downstream sector requires a change in business modes of operation and that the gains accruing to the policy are worth the effort.

TABLE OF CONTENTS

Certification - - - - - - - - - - ii

Dedication - - - - - - - - - - iii

Acknowledgment - - - - - - - - - iv

Abstract - - - - - - - - - - v

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study - - - - - - - - 1

1.2 Statement of Problem - - - - - - - 6

1.3 Objectives of the Study - - - - - - - 8

1.4 Research Questions - - - - - - - - 9

1.5 Hypothesis Formulation - - - - - - - - 9

1.6 Significance of the Study - - - - - - 11

1.7 Scope of the Study - - - - - - - - 12

1.8 Limitations of the Study - - - - - - - 13

1.9 Definition of Terms - - - - - - - - 13

References - - - - - - - - - 17

CHAPTER TWO: REVIEW OF THE RELATED LITERATURE

2.1 Introduction - - - - - - - - - 18

2.2 Strategic Change - - - - - - - - 18

2.3 Benefits of Deregulation - - - - - - 21

2.4 Strategic Adaptation to Change of Business Environment - - 25

2.5 Post Regulation Risk of Firms in the Downstream - - - - 27

2.6 Leadership Style of Managers and Entrepreneurs - - - 29

2.7 Best Practice in the Global Oil Industry - - - - - 34

2.7.1 French Background - - - - - - - 34

2.7.2 Germany Background - - - - - - 36

2.7.3 Italy Background - - - - - - - - 38

2.7.4 Kuwait Background - - - - - - - 39

2.7.5 Japan Background - - - - - - - - 41

2.7.6 Australia Background - - - - - - - 42

2.7.7 Venezuela Background - - - - - - - 43

2.7.8 United States Background - - - - - - - 44

2.7.9 Analysis of Strategic Prepositions for Deregulating the

Downstream Sector - - - - - - - - 45

2,7.10 Four Strategic Propositions for Deregulating - - - - 47

2.7.11 Strategy 1: Partial Deregulation of only the Supply Side - - - 47

2.7.12 Strategy 2: Partial Deregulation of only the Demand Side - - - 50

2.7.13 Strategy 3: Complete Deregulation of the Downstream Sector -- 52

2.7.14 Strategy 4: Fine-Tuning the Status Quo - - - - - 54

2.8 Summary of the Review - - - - - - - 55

References - - - - - - - - - 58

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction - - - - - - - - - 64

3.2 Research Design - - - - - - - - 65

3.3 Sources of Data - - - - - - - - 66

3.4 Instrument for Data Collection - - - - - - 66

3.5 Method of Data Collection - - - - - - - 67

3.6 Populations/Sample Size Determination - - - - - 67

3.7 Validity and Reliability of Instrument for Data Collection - - 68

3.8 Procedure for Data Analysis - - - - - - - 68

CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA

4.1 Presentation and Analysis of Data - - - - - 71

4.2 Test of Hypothesis - - - - - - - - 79

CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS AND

CONCLUSION

5.1 Summary of Findings - - - - - 103

5.2 Conclusion - - - - - - - - 105

5.3 Recommendations - - - - - - - 107

5.4 Area of Further Study - - - - - - 109

Bibliography - - - - - - - - 110

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study Area

All over’ the world, reasons for reforms in the public sector vary from country

to country depending on the objective, peculiarity and the circumstance that the

country finds itself. The issue of reform of the Nigerian downstream sector

refining and distribution of petroleum products has been on for quite some time.

It has however, become more compelling in the last few years given the trauma

of scarify of petroleum products that the nation has continuously witnessed.

Prior to 1965, petroleum products domestic requirements were met entirely

through importation under a deregulated environment. By 1965, it had become

apparent that the nation, haven gained independence five years earlier, could no

longer rely on important for its entire requirement.

Consequently, the first refinery in Nigeria - the old Port Harcourt refinery was

built in 1965 as a commercial venture to provide petroleum product at market

related prices. It was a 35,000 bard per day refinery jointly owned by shell

(25%), British Petroleum (BP) 25%, the Federal Government (20%), and the

three regional governments (10% each), (Kopolokun, 2004).

However, by mid 1 970s, with the advent of the oil boom government became

directly involved in the downstream sector by building two new refineries and

lacking over the first. The Warn refinery was commissioned in 1978 while the

Kaduna refinery came on stream in 1980. Government’s main objective was to

make petroleum products available throughout the country

(www.nnpcNigeria.com)

With the change in ownership structure, the pricing, policy was modified and

controlled to encouraged national distribution at uniform prices. This

incidentally introduced the issue of bridging and price equalization at

government’s expense. This was later inherited by the Nigerian National

Petroleum Corporation (NNPC).

However, these controlled prices did not respond to the continuously changing

business and economic environment. Thus, the control, of petroleum products

prices by government mark at difficult to earn enough resources to maintain the

refining and distribution assets.

Since the commencement of government’s direct involvement therefore, prices

of major petroleum products such as premium motor spirit (PMS), Automotive

Gas oil (AGO) and dual purpose kerosene were set by government. This, of

course, has been disincentive to the private sector investment in refining

(Kopolodun, 2004).

Also, the impression is created that since Nigeria is an oil producing nation,

petroleum product must be cheap regardless of the cost of productive. This has

resulted in economic dislocation with its dire consequences. Such consequences

include.

• Loss of revenue to government

• Petroleum products scarcity.

• Funding problem for NNPC, leaching to lack of regular maintenance of

refining and distribution facilities.

• Capacity under utilization.

• Smuggling of petroleum products

• Divestment by marketers

• Wastages

• Adulteration of products

• Social and political unrest

• Poor economic growth

• Rampant pipetine ruptures and vandalisation

• Inadequate and ageing conastal vessels

(NNPC News, January, 2005).

The question in how can the NNPC, the refineries and the distribution sector in

particular be repositioned to respond effectively to the dynamics of the oil

industry for the maximum benefits of the national economy? It is in this light,

that the deregulation of petroleum products prices becomes a sine-qua-non to

ensure full cost recovery and reasonable rate of return for any operator.

For many year, NNPC was not able to meet the objective for which it was set-

up as a result of the underlying factors briefly mentioned above and this must

have be responsible for government’s decision to deregulation the downstream

sector (NNPC News January, 2005).

Government as far back a. 1988 commenced a privatization and

commercialization programme through decree No 25 of 1988 which focused on

partial and full commercialization of some 145 selected public enterprises it was

aimed at rationalizing government expenditure and programme in response to

the declining economic fortunes of the early 80’s. Furthermore, through Decree

No 28 of 1999 emphasized its inability to continuously subsidize inefficient and

loss making parastatals and stated that privatizing such investment had become

the cornerstone of its policy (Kopolodun, 2004).

The immediate past administration of Chief Olusengun Obasanjo, on the

assumption of office in 1999 said that it would turn the situation around

through:

• Maintaining self sufficiency in refining.

• Ensuring regular and uninterrupted domestic supply of petroleum

products.

• Establishing facilities and infrastructure (Refineries, storage depots, etc)

for the production of refined produced targeted at the export market and

support to domestic petrochemicals.

• Providing gainful employment and enabling Nigerians to acquire

technical know-how in refining and distribution business.

The downstream reform is therefore expected to ensured

• Petroleum product price determination by market force.

• Absence of government control in the pricing process except for tax

purpose.

• Freedom for marketers to source petroleum products locally and

internationally.

• Freedom of marketers to purchase crude oil local and international source

for processing in the refineries.

• Freedom of refineries to enter into processing agreement with marketing

companies on the basis of charging fees.

• Right of access to distribution facilities subject to transportation

agreement based on tariff (NNPC News, January, 2005).

Deregulation of the market implies that a regime of trade liberalization will be

in place whereby petroleum product can be imported or exported. This will

ensure abundant petroleum products in the economy and elimination of long

queues at fuel stations (NNPC News, February, 2005).

Deregulation is very critical to private sector participation in refining because it

ensures commercial viability of product supplies thereby enhancing

profitability, which is the major business attraction. The number of marketers

and retail stations is likely to increase, with their positive impacts on business

expansion as well as employment generation. According to Kopokolun (2004)

about 25,000 jobs will be created for Nigerians. Instead of divesting from the

industry, marketers are most likely to invest more (NNPC, News, May 2004)

1.2 Statement of Problem

Population and industrial growth in Nigeria and the attendant increase in

economic activities in the country led to increased demand for petroleum

product. Demand became much higher than supply and in consequence, acute

full scarcity and adulteration was experienced. In response to this problem, the

federal government inaugurated a committee to review all aspects of petroleum

products supply and distribution in Nigeria. The term of reference covered by

the committee, are:

• the burden of subsidies on the national treasury;

• the strain of financing state owned; petroleum business;

• to check the intra and trans-ECOWAS smuggling of Nigerian petroleum

products;

• the relative market prices of petroleum product in the ECOWAS sub-

region, vis-a-vis their prices in Nigeria;

• licensing of private refineries;

• the need to break the monopoly of NNPC; and

• the general benefit of deregulation

These points of reference outline above excluded perhaps, inadvertently, the

multiplier affect the reform will have on the domestic petroleum marketing

firms.

The committee recommended complete deregulation of the downstream sector

of the petroleum industry. In September of the same year, the federal

government announced the deregulation of the downstream sector. This

announcement tended to exert enormous influence of the management of

petroleum marketing firms in the downstream sector of the industry.

Although, the federal government of Nigeria, formally announced deregulation

of the downstream sector of the petroleum industry in September 2003, real

deregulation may be traced back to 1999, when in November of same year,

President Obasanjo, announced that the market for petroleum prices, would be

deregulated which would offer the country debt relief. He noted that all

petroleum prices would be fully deregulated and domestic crude allocation to

the NNPC would be paid for at export parity with immediate effect. This would

have an immediate effect of pump prices.

This action implies therefore, that all the firms in this sector shall either shift

from a regulated environment to a deregulated one or move out of the industry

This transition brought about ‘strategic implication (of deregulation) in the

management of petroleum marketing firms in the downstream sector of the

petroleum industry’. Already most of the petroleum marketing firms,

particularly the petrol stations have been observed to be idling or closed down

and the few active ones were operating at less than 50% of installed capacity.

Therefore, one would like to find out the impact the deregulation has on the

strategic management of these firms as they transit or diversify from a regulated

environment to a deregulated one.

1.3 Objective of the Study

The objectives of study are as follows:

(1) To examine the strategic management system of firms in the downstream

sector in order to assess their capacity to adjust strategically to the

deregulation of the sector;

(2) To identify the nature of the benefits that comes from the deregulation of

the sector;

(3) To examine the process of strategic change in a new business

environment by firms in the downstream sector of the petroleum industry

with a view to determining the impact of deregulation on the on the

strategic management of these firm;

(4) To ascertain the risks associated with strategic change in terms of impact

on the growth of the firm;

(5) To establish the best practice in the global petroleum industry with a view

to analyzing the strategies of deregulating the Nigerian downstream

sector in relation to best practice in the industry;

(6) To assess the effectiveness of leadership styles of managers/entrepreneurs

of the petroleum marketing firms with a view to determining their

adaptiveness to the new business environment

1.4 Research Questions

The research questions .for the study are as follows:

1. To what extent do the strategic management systems of firms in the

downstream sector have the capacity to lend them selves to deregulation?

2. What benefit accrue from the deregulation policy of the downstream

sector of the petroleum industry and which of the stakeholders benefit

more?

3. What is the impact of deregulation on the strategic management of firms

in the downstream sector?

4. To what extent do the obvious risks associated with strategic change

impede the overall growth of firms in the downstream sector of the

petroleum industry?

5. To what extent do the strategies employed in the deregulation of the

downstream sector compare favourably with the global best practice of

petroleum industry?

6. How much does the leadership style of manager/entrepreneurs of

petroleum marketing firms support performance?

1.5 Research Hypothesis

HA: I = The strategic management system of firms in the downstream sector has

the capacity to adjust to the deregulation of the sector.

HA: 2 = Benefit derivable from the deregulation policy accrue more to the

independent stakeholders than the major stakeholders.

HA: 3 = Deregulation generally have positive impact on the management of

firms in the downstream sector of the petroleum industry.

HA: 4 = The risks associated with strategic change impede the growth of firms

in the downstream sector of the petroleum industry

HA: 5 = The strategies for operating the deregulated downstream sector of the

petroleum industry compare favourably with the best practice in the

global petroleum industry.

HA: 6 =The leadership styles of manager/entrepreneurs of the petroleum

marketing firms support performance and are effective.

1.6 Significance of the Study

Owning the fact that petroleum marketing firms play a major role in serving

other business outside the petroleum industry, this research has of necessity

attempted to highlight the strategic implications of these firms operating in a

new business environment and that returns are not guaranteed in competitive

markets as they arc in regulated markets, therefore, transition to deregulated

environment requires different skills and capabilities from managers than those

in a regulated environment.

The study also points to the knowledge that participation in competitive

environment may lead to performance difficulties and increases. In firm risk, at

least in the short- run, more so that majority of the petroleum marketing firms in

the downstream sector lack executives with experience in competitive

environment, especially when the transition was sudden.

In response to the challenges posed by the sudden deregulation of the

downstream sector of the petroleum industry, it is therefore imperative for these

firms to train their managers on the knowledge with which to identify the

strategic lapses in their organization and to adopt new strategies to match the

exigencies of the future.

Today, deregulation is a topical issue in Nigeria and no prior research has been

attempted to address its consequences on petroleum marketing firms. This

pioneer study is therefore significant as it responds to this niche. It also closes a

gap in the literature.

1.7 Scope of the Study

Strategic planning focuses on issue of concern to organization top management

in choosing and charting a path towards sustainable competitive advantage and

superior performance. This include; strategic change (which. is the thrust of this

work), strategic processes such as decision making, entrepreneurship, creation

and management of new businesses,, it also focuses on the relationship between

organization and its environment, political, economic and social cultural,

including social responsibility issues. The current study is to examine the

strategic implication of deregulation in the management of firm diversifying

from a regulated environment to a deregulated environment in the same

industry. This research will be limited to the petroleum marketing firms in the

deregulated downstream sector of the petroleum industry among others. It will

also examine the problems associated with the downstream that have

precipitated its sudden deregulation, the mode of deregulating the downstream

sector-considering the best practice in the global petroleum industry. Finally,

the researcher will suggest feasible solution to the strategic problems affecting

the operators of the sector particularly, the petroleum marketing firms. The

period covered in this study is 1999 to date, a period commonly referred to as

“Era of National Economy Rejuvenation”.

1.8 Limitation of the Study

The researcher is however, constrained by time and means to reach out to over

1570 firms in the industry located in the south-south geo-political zone of the

country (Department of Petroleum Resources (DPR) but the few covered (94 in

number would form useful basis for the conclusions arrived at in the study.

Also, in the course of interviewing respondents, the researcher discovered that

the respondent were scared of giving out information necessary for the study for

the suspicious that the researcher is an agent of the much dreaded “Economic

and financial crime commission (EFCC).

1.9 Definition of Terms

For the purpose of clarity and common understanding, the researcher has

hereunder, defined some of the terms used in this work:

1. Deregulation: This refers to the removal or reductions and restrictions

that affect the operation of a particular market or the economy as a whole

(Brettton woods 1994). www.afsc.org/africadebt/iargon.htm in the

context of the study, deregulation is the opening up of the downstream

sector of the petroleum industry to competition among all players in the

industry. It means allowing every participant the opportunity to refine or

import petroleum products for use in the country in so far as products so

refined or imported meet quality specification. It involves removal of

entry barriers into the supply and distribution of petroleum products.

Under the policy of deregulation, no qualified and competent person/body

is prevented from participating.

2. Business Risk: This refers for the possibility that a company will not be

able to meet ongoing operating expenditure. The possibility of an

individual company losing with investors or having financial difficulty.

Also called security specific risk or non-systematic risk

www.optionskarning.com/glassaries/6/htm

3. Best practice: This refers to a superior method or innovative practice that

contributes to the improved performance of an organization usually

recognized as “best” by other peer organization

www.asg.org/infor/glossary/b/html

4. Downstream: This is an oil - industry term used to refer to the

production, transportations distribution and marketing. www.country

data.com/frd/co&bahrian/bh-glos.html&www.conocophullops/news

100m10th-resources/energylossaryd.htm

5. Hedonsism: The oxford desk dictionary and thesaurus define it as,

“belief in pleasure as the highest good and the proper aim of human”

http://projectparadox.f20 .org/thoughts/papers/in-defense-of-hed-

onssm.php

6. Altruism: The quality of unselfish concern for the welfare of others

http://diet.net/altruism

7. Charismatic leadership: This is leadership that possesses outstanding

quality traits such as being visionary, energetic, unconventional and,

exemplary (Bass, 1985; Conger & Kanungo, 1988; House, 1977)

(http://chae.nrnus.edu/dboje/teaching/3 3 8/charisma.htm)

8. Transactional leadership: Transactional leadership identifies and

clarifies for subordinate their job task and communicate to them how

successful execution of those tasks will lead to receipt of desirable job

rewards (Avoho & Bass, 1988; Bass, 1985, 1990). Transactional

managers determine and define goals for their subordinate, suggest how

to execute tasks, and provide feedback.

(http:7/leadership.au.af.Mil/documents/homring.htrn)

9. Transformational leadership: Transformational leader adopts a long-

term perspective. Rather than focusing solely on current needs of their

employees or themselves, they also focus of future needs; rather than

being concerned only with short - term problem and opportunities facing

the organization, they also concern themselves with long- term issues

rather than viewing intra-and extra - organizational factors as discrete,

they view them from a holistic perspective (Avoho et al, 1988).

10 Power distance: This is a term used to denote how society deals with the

fact that people are unequal in physical and intellectual capacities which

grow over time into inequalities in power and wealth then the extent to

which people accept unequal distribution of power can be classified as

either high, how, large or small power distance (Zofia, 1998) Hafstede’s)

www.sha.muohio.edu/ABAS/1998/Kroskos2/pdf)

11. Value migration: It is the art of anticipating and satisfying identifiable

priorities and reasonable needs and expectation of the customer through

valuable service(s) by organization. In order words, business would keep

afloat by thinking ahead of competition and creating value for the

customer.

12. Strategic management: Defined as the art and science of formulating,

implementing and evaluating cross-functional decision that will enable an

organization to achieve its objectives. It is an ongoing process that

assesses the business and industry in which the company in involved,

assesses it’s competitor and set or review strategies to meet all existing

and potential challenges occasioned by a change in business environment

or circumstance - such a new technology, new economic policies or

political reordering etc.

REFERENCES

Aret Adams (2001): Post Express Newspaper, May 17, 2001.

Best Practice: www.asg.org/info/glossary/b/html

Bretton Woods (1994): www. afsc.org/africa-debt/jargon.html

Business Risk: www.optionskarning.com/glossaries/b.htm

Downstream: www.country-data.com/frd/cs/bahrain/bh-gloshtm &

www.conocophillips.com/newsroom/other-resources/emergyglossaryd.htm

Kupolokun, (2004): www.nnpc.Nigeria.com.

Kupolokun (2004): NNP News, Jan. 2005.

Kombo, (2004): www.afsc.org/africa-

debt/jargon.indomen.wikkipedia.org/wiki/strategy.

Mbendi, P. (2004): Nigeria: Oil and Gas Industry.

NNPC News Periodical. (August, September, October, 2003).

NNPC Website: www.nnpc.Nigeria.com

CHAPTER TWO

REVIEW OF THE RELATED LITERATURE

2.1 Introduction

Research involving the strategic behaviour of firms in regulated industries has

been sparse in the strategic literature (Ramaswamy et al, 1994).

This finding notwithstanding, a review of related literatures has been attempted

in the following areas:

• Strategic change.

• Benefits of deregulation.

• Strategic adaptation to change of business environment.

• Post regulation risk of firms in the downstream.

• Leadership styles of managers and Entrepreneurs.

• Best practice in the global oil industry, analysis of strategic preposition

for deregulating the downstream sector.

2.2 Strategic change

In business world, the most prevalent event is the change phenomenon.

Hundreds of authors, particularly since the early 199s, have attempted to explain

what this means for business strategy. Image [200] notes that the development

of business strategic planning has been as revolutionary as the technological

revolution or even revolution in life - styles and big companies in Nigeria and

other developing countries of the world have been developing corporate

strategies in line with their counterparts in highly industrialized countries where

corporate planning became a sin-qua-non to business success since the dawn of

the (1960s). He maintained that an organization will accomplish profitable

growth if the business plant is based on concrete and reliable information of

both internal and external environment.

Pascale (1990) says that relentless change requires that business continuously

reinvent themselves. His famous maxim is “Nothing fails like success” by

which he means that what was a strength yesterday become the root of

weakness today. We end to depend on what worked yesterday and refuse to let

go of what worked so well for us in the past such that prevailing strategies

become self-confirming. In order to avoid this trap, businesses must stimulate a

spirit of inquiry and healthy debate. They must encourage a creative process of

self renewal based on constructive conflict. Kleimer (1996) claims that to foster

a corporate culture that embraces change, you have to hire the right people; like

heretics, heroes, outlaws, and visionaries. The conservative bureaucrat that

made such a good middle manager in yesterday’s hierarchical organizations is

of little use today. Earlier, peters$ Austin (1985) had stressed the importance of

nurturing champions and heroes. They said we have a tendency to dismiss new

ideas, so to overcome this, we should support those few people in the

organization that have the courage to put their career and reputation on the line

for an unproven idea. Slywotsky (1996) showed how changes in the business

environment are reflected in ‘value migrations’ between industries, between

companies, and within companies. He claims that recognizing the patterns

behind these, value migrations is necessary if we wish to understand the world

of chaotic change. In his earlier work, “profit patterns” (1999) he describes

businesses as being in a state of “strategic anticipation” as they try to spot

emerging patterns. A number of strategists use scenario planning techniques to

deal with change. Hryden (1996) for example says that change and uncertainty

make “optimum strategy” determination impossible. He argues that we have

neither the time nor the information required for such a calculation. The best we

can hope for is what e calls “the most skillful process” and he gets support from

Schwartz (1991) who maintains that strategic outcomes cannot be

predetermined. He added that the fast changing business environment is too

uncertain for us to find value in formulas of excellence or competitive

advantage. Instead, scenario planning is a technique in which multiple outcomes

can be developed, their implications assessed, and their likeness of occurrence

evaluated. In the same vein, Mintzberg & Quinn (1988) reexamined how

strategic management is being done in this ever changing world, particularly,

the strategic process. He concludes that it is much more fluid and unpredictable

than people had thought. Because of this, he could not point to one process that

could be called strategic planning. Instead he concludes that there should be a

combination of five types of strategies - plan, ploy, pattern, position and

perspective to match the changing environment. Similarly, markides (1999)

lends support to heyden (1996) as he notes that strategic management is both

planned and emergent, dynamic and interactive. It is an on - going, never ending

integrated process requiring continuous reassessment and reformation. Granted,

all strategic management texts extol the virtues of proper planning, having a

strategic focus, formulating appropriate policies, reading marketing signals

correctly, ensuring the prompt and timely execution of strategic plans and

monitoring the performance of plans through a well though out systematic

feedback mechanism in order to take enervation action when deviation: acorn

John Simmonds philosophized that “ever company should have on its planning

staff one SOB ( son of a bitch ) who disagrees with everything you wont to so

that planners don’t fall too easily for their own schemes (Osaze 1991).

However, organizations must develop mechanism for understanding the source

and level of complexity it will face in the future and then transform itself into a

complex adaptive system in order to deal with it Dudik (2000).

2.3 Benefits of Deregulation

Since 1999, the Nigerian government decided to emulate developed and

developing oil producing nation by deregulating the downstream section of her

petroleum corporation (NNPC). Like every policy measure, deregulation will

not be without costs. A cost- benefit analysis always forms sound basis for

adopting particular policy, and it is believed in this case, that, the benefits of

deregulation outweigh the costs. Kwakye (2005), notes that the most obvious

cost of deregulation is the potential to have cascading price increases from

transportation of food, to a whole lot of other items and services. He maintains

that this chain of price increases is inevitable since, in economics everything

affects every thing else, however remotely and oil is, of course, a unique

commodity and its effects are expected to be more pervasive. Though, the

associated prices increases are, however, expected to cause a one- time jump in

overall inflation, which needs not become perpetuating if it is not

accommodated, say through monetization of budget deficits and large wage

awards. In order words, once fiscal and monetary discipline and associated

exchange rates stability remain in place, inflation should return to the original

declining path quickly, kwakye concludes. Feblowitz (2000), feels it is true

from the consumer’s perspective that the benefits of deregulation may not be

intuitively obvious, especially with the hassle factor of making sense of various

offers and the confusion of meeting the challenges of price increases on

commodities and services in the immediate term. This fact notwithstanding,

Ramsey & Heskett (2000) believe in the long- term advantages of deregulation

and its worth the attendant short- term disruptions and consumer confusion. The

negative perceptions of the Nigerian public that arose from the sanitization

campaigns to deregulate the down stream sector which were registered through

protests and strikes by lab our unions were resisted by the government. The

government on the other hand, defended her position by pointing to the

successes of other countries as USA, Germany, Mexico, etc. who run a

deregulated downstream sector as her models in adhering to the policy. In the

campaigns aired in the television and the print media, Kopolokun (2004) states

that the following benefits amongst others, are being enjoyed from the

deregulations of the sector:

i. Products are now available all over the country and no one needs to

queue for days at filling stations waiting for non-existent products.

ii. Motorists no longer hoard fuel in their homes or carry jerry cans of fuel

when traveling. This has eliminated the fuel-induced accidents and fires

that claimed thousands of lives in the regulated economy.

iii. Marketers are now investing in new facilities such as storage tanks, retail

outlets, trucks, the railway rolling stock, etc.

iv. There is. now competition among the marketers who now treat the

consumer as the king he is.

v. The marketers, who in the past depended on NNP.C for all products, now

import their own. Some are planning to build refineries in Nigeria.

vi. Jobs have been created in the sector. For example, NNPCs now confident

enough to build its own retail outlets (mega stations) and has already built

and is operating one each in Abuja, Lagos, Kano, Enugu and Port

Harcourt, other ones

vii. Apart from new investment in new facilities, old ones are being expanded

because of an increase in activities.

viii. Investment in the downstream sector is now more attractive to the

international and local business communities as evidenced by the

interests expressed in the refineries privatization programme.

However, the above benefits appear to be experienced in the short and mid-

term. Kwakye (2005), points to the long term advantages as did Ramsey &

Heskett (2000). He indicated the following benefits of deregulation as the flip

side of the costs of sub subsidization in a regulated downstream:

i. Deregulation frees resources for government to spend on productive

ventures and social sectors, in education and health

ii. A market price will encourage efficiency in the use of petroleum

products, which would reduce traffic congestion, and loss of productive

time. This will save the country money in terms of reducing oil imports.

iii. Removing the subsidy will reduce the incentive to smuggle as the

domestic price approaches those in neighboring countries. This will save

the country foreign exchange, which would have been used to import

more fuel to replace the smuggled portion, and also allow government to

realize the full complement output would have been lost to smugglers.

iv. Even more fundamentally, deregulation will depoliticize petroleum

pricing and eliminate the speculation, rent seeking, and other practices

usually associated with government-announced price increases.

v. Automatic price fall passed on to consumers

Other commentators acknowledge the benefits of deregulations from different

perspectives. For example, Lula (2000), observes that the deregulation of the

energy sector in the United States was froth with hindsight as the policy makers,

by their rules, suggest that they lost the fundamental purpose of deregulation.

As a result a few big companies that figured out how to game the rules profited

enormously, while everyone else suffers. This view appears to be the case with

the Nigerian downstream because the major marketers who have capacity and a

good network of marketing outlets are benefiting from the policy far above their

counterparts, the independent marketers.

Struck (2000), holds that deregulation unleashes the power of a self-correcting

free market, giving customer services at prices and quality levels that they are

willing to pay for. ‘This is evident in the Nigerian telecommunication industry.

It encourages selective increases in capacity, new approaches to managing

consumption, increases merger and acquisition activities, with attendant

realization of synergies and lower costs (Feblbwitz 2000).

2.4 Strategic Adaptation to Change of Business Environment

As the petroleum industry braces up for deregulation, many important changes

will take place. One of the most vital of these changes involves firms learning to

operate in a competitive environment. In the work of Mahon & Murray, (1980,

1981), we find differences between operating in competitive and regulated

markets. That transition to a deregulated market requires different skills and

capabilities from managers than those used in a regulated market. That

transition to a deregulated market requires different skills’ and capabilities from

managers than those used in a regulated market. ‘While it may seem as if firms

are ready for impending deregulation, the’ majority of firms have few

executives with experience in a competitive environment, Almquist and

Piotroski, (1999).

Studness, (1996) observes that current merger activity is premature and

increases the risk that managements will no doubt lead to financial distress fro

some firms. Though participation in competitive environment may lead to

performance difficulties and increases in firm risk. Smith and Zeithaml, (1996),

found that diversification by firms into deregulated environments, however, has

provided a useful mechanism for some firms to seek new opportunities and

learn how to operate successfully in competitive environment. Thus, the study

of diversification strategy may provide valuable insight with regard to post -

deregulation firms outcome, smith & Zeithaml (1996) concluded. According to

Russo (1992), since the early 1990s many electric utility firms in the US chose

‘to expand their activities into deregulated (or much less regulated) businesses

such as real estate, insurance, investment, shipping, etc. The result of such

activities has provided many firms with growth opportunities and valuable

knowledge gains that should be useful as deregulation occurs. For example,

Kranhod (1998) found that PG&E corporation has pursued domestic growth

within the deregulated side of the electric industry and achieved over half of its

second quarter revenue in 1998 from deregulated businesses. Western

Resources, on the other hand, has pursued a strategy of acquiring consumer

oriented companies, whether related or not the industry, to make up for the

financial consequences resulting from change in business environment.

However, the, outcomes of such diversification have been mixed, with some

moves resulting in heavy losses and increased risk (Kranhold, 1998). Infact,

public utility companies like NNPC are monopolies. Monopolies are necessary

to achieve the economies of scale essential in public operations. However, Crew

& Kleindorfer (1979) examined the monopoly consequences of public utility

companies and concluded that unrestricted monopoly power is socially

undesirable. Posner, (1974) nevertheless, feels that government seek to control

the prices of utility items and services in order to protect the public. Posner got

the support of Crew & kleindorer (1979) as they maintain that if regulation is

properly done, it should result in utility companies providing adequate services

at reasonable rates while remaining economically efficient.

2.5 Post Regulation Risk of Firms in the Downstream

Early researcher such as Rumelt (1974) classified firms according to their level

and type of diversification, and compared the profitability of these firms based

on this classification. More recent studies have emphasized the tradeoff between

risk and return when examining the impact of diversification (Bettis, 1981;

Bettis & Hall, 1982). However, as noted by Ramanujam and Varadarajan

(1989), the aspects of risk in studies of diversification have largely been

ignored. In addition research by Lubatkin, Hemant and Srinivasan (1993)

suggests that risk may be a more relevant outcome measure when evaluating the

effects of diversification on the firm. A few research efforts have examined the

effects of diversification strategies on the risk of the firm. For example, change

and Thomas (1989) found the relationship between diversification and risk-

return insignificant, suggesting diversification does not lead to risk or return

benefits.

Moreover, Hill & Hansen (1991) found that diversification is a low risk-low

return strategy. Montgomery and Singh (1984) also examined the relationship

between diversification strategy and risk and found unrelated diversifiers to

have significantly higher risk than other types of firms. In another study of

diversification, Barton (1988) found support for Montgomery and Singh’s

919840 that unrelated diversifiers have significantly higher risk compared to

firms. Lubatkin and O’Neill (1987) also examined the effects of diversification

on risk, however their results differed from prior studies. In their study of 169

mergers they found a significant reduction in post-merger risk for related

diversifiers, but did not find a significant increase in post-merger systematic risk

for unrelated diversifiers. Chatterjee and Lubatkin 1990) also found that related

mergers lead to a significant decrease in risk, while unrelated mergers lead to

small and insignificant changes in risk. However, when controlling for target

firm risk they found that unrelated mergers actually lead to a significant

decrease in risk. Moreover, in a study of 400 diversified firms Amit and Livant

(1988) found that unrelated diversifiers to have lower firm risk However,

Lubatkin et al (1993) found that unrelated diversification leads to greater firm

risk. Thus, the results from prior research regarding the relationship between

diversification and risk are mixed (Amit & Livant, 1988; Barton, 1988; Bettis &

Mahajan, 1985; Charreijee & Lubatkin, 1990; Lubatkin & O’Neill, 1987;

lubatkin et al., 1993; Montgomery & Singh, 1984). However, most studies have

found a significant relationship between diversification and the risk level .of the

firm.

The reason for the mixed findings discussed above may stem from the fact that

prior studies have not, considered the impact of the firm’s environment on risk.

Over the years, numerous studies have suggested not only the importance of

firm strategy, but also the environment in which the firm operates (Bettis, 1981;

Christensen & Montgomery, i1981; Hannan & Freeman, 1977; Hrebeniak &

Joyce, 1985; Lawless 7 finch, 1989). This research corroborates Russo, (1992)

argument that firms in deregulated environment face constraints not faced by

those in regulated environments.

2.6 Leadership Styles of Managers and Entrepreneurs

Leadership styles of mangers and executives have a direct effect on individual

and organization-level performance in business organization (Bass, 1990; Yuki

& Van Fleet, 1992). It is not surprising, therefore, that hundreds of leadership

studies have been conducted over the years.

Since the late 1980s, much of the leadership research has concentrated on

characteristics and specific effects of charismatic and transformational

leadership (Bass, 1985; Bennis & Nanus, 1985; Kanungo & Jaeger, 1990; Tichy

& Devanna, 1990). A version of transformational leadership theory that has

generated the most confirmatory research was formulated by Bass and his

colleagues (Bass, 1985; 1996; Avolio, Bass & Jung, 1995). In this theory, three

well - known types of leadership are contrasted: laissez - faire, transactional,

and transformation leadership Managers exhibiting transformational leadership

raise subordinates’ awareness of the importance and value of designated

outcomes, get employees to transcend their own self-interests for the sake of the

group or organization, and change or increase subordinates’ needs (Avoil, Base

& Jung, 1995). To accomplish these results, transformational leaders possess

and display four key characteristics (Bass 1985, 19990): charismatic Leadership

(CL), Inspirational Motivation (IM), intellectual stimulation (IS), and Individual

Consideration (IC). Leaders demonstrating charisma have .a vision, a strong

influence, and a sense of mission. They also instill pride in their subordinates

and command respect. Employees have a high level of trust and confidence in

such leaders, tend to adopt their vision, seek to identify with them, and develop

a strong sense of loyalty to them (Bass 1985; 1990).

Ardichvili, acknowledging Bass ( 1985, 1990 ) notes that leaders manifesting

inspirational Motivation articulate high expectations to subordinates,

communicate important purposes in simple ways, and, use symbols to focus

their efforts. They also demonstrate self— determination and commitment to

attaining objectives and present an optimistic and achievable view of the future.

Through these efforts, such leaders help convince employees that they can

accomplish more than they initially felt was possible (Ardichvili, 2001).

A transformational leader provides intellectual stimulation to employees by

encouraging them to rely upon new approaches for solving problems; to explore

new ways of achieving the organization’s mission and goals; to employ

reasoning, rationality, and evidence rather than unsupported opinions; and to

utilize intuition. Subordinates under such a supervisor are not hesitant to offer

their ideas (even one that are seemingly silly). Tend to have enhanced thought

processes. Bass (1985) argues that a leader can be an intellectual stimulation to

employees when the leader acts as a teacher and prodder of inquiry and

questioning, Furthermore, Bass indicates that intellectual stimulation by the

leader is needed most when groups have to solve ill - structured, rather than well

- structured, problems. New business start - ups generally face the kind of ill -

structure problems that w3ould be amenable to intellectual stimulation by a

leader. Leaders displaying individual consideration treat each employee as an

individual. Such supervisors are attentive to the unique concerns of

subordinates, and consider their individual development and growth needs.

Mentoring, coaching, and counseling are means of a manager demonstrating

individualized consideration. Conger and Kahungo (1988) asserted that

charismatic leader personally engages in innovative behaviours that often are

counter to conventional norms; however, a charismatic leader in an R&D

project group can encourage the kind of bold and unconventional work by

professional employees that is often needed to generate technological

innovations.

There is considerable evidence in the works of Gaspar (19920 and Lowe, et al

(1996) that transformational leadership is effective and is positively related to

subordinate satisfaction, motion and performance.

Leadership exists in all societies and is ‘essential to the functioning of

organization within those societies. However, the attributes that are seen as

characteristics of leadership may vary across cultures (Den Hartog et al, 1999).

House 1995) notes that prevailing theories of leadership are North American in

character and are based on the assumptions of individualism as opposed to

collectivism, hedonistic rather than altruistic motivation, centrality of work, and

democratic value orientation. Cross-cultural psychology and sociological

researches show that many cultures do not share these assumptions (Den Hartog

et a! 1999). As a result there is a growing awareness of the need for a better

understanding of the way the leadership is enacted in various cultures (House,

1995).

Bass (1997) argues that there is universality in the

transactional/transformational leadership paradigm and presented cross-

continental supportive evidence, collected from organizations in business,

education, the military, the government, and the independent sector. He

maintained that the ‘same conception of the phenomena and relationships can be

understood as a consequence of unusual attributes of the organization or

cultures. Den’ Hartog et al (1999), in their study of 62 cultural groups are likely

to have different conceptions of what leadership ,should entail, certain attributes

associated with transformational leadership are universally endorsed as

contributing to outstanding leadership, and some other attributes are universally

seen as impediments. In Russia, for example, puffer (1996) observes that

contemporary Russian managers tend to share power, are inclined decision -

making (largely to avoid the responsibility for unforeseen consequences) ,

prefer to concentrate on strategic decision - making, are tenacious and energetic,

and have strong collective attitudes.

Elenkov (1997), in his comparative study confirms that Russian managerial

culture is characterized by high power Distance and a strong collective

mentality, and concludes that Russian employees will expect an autocratic

leadership style, which is offset by the support given to families of subordinates

(small power Distance) and that presupposes the confidence and ability to

negotiate with ones’ boss (high individualism), are incompatible with the large

power Distance/low individualism culture.

Ardicvili et al (1998) have found that a significant percentage of the participants

in their study of Russian entrepreneurs displayed autocratic leadership styles

and preferred to make important management decisions individually, without

consulting with their peers or subordinates.

Birds (1989) support entrepreneurs’ creative and transformational leadership

behavior, especially the use of charismatic and inspirational behavior. Just as

societies differ from one another so are organizations’ leadership or

management styles, leadership styles that are productive in certain organizations

may not necessarily apply in other organizations whether they are in the same

industry or not. Osaze (1991) sums it up with the words of R. Buskirk who said

“Companies using strategies identical to those of successful firms can fail, the

difference; how well they practically implement those strategies”.

Leadership styles of organizations are significantly a function of the business

environment and norms and value systems of the host societies in general (Den

Hartog et al 1999). Therefore, leadership styles of successful American

organizations may be productive in organizations in countries of varying

cultures (House, 1995).

2.7 Best Practice in the Global 011 Industry

The countries hereunder, reviewed, possess either of the characters of Nigeria

as:

i. A recognized oil producing nation

ii. A member of the organization of petroleum Exporting Countries (OPEC)

and

iii. A politically democratic nation.

2.7.1 French Background

There are twenty - four refineries in France and the country has a total refinery

capacity of 93 mt as at 1997. France is a significant net exporter of heavy fuel

oil and importer of diesel fuel and heating oil. Domestic demand was 91.9 boom

in1997.

The entire French downstream industry is characterized by poor profitability,

due to a combination of high refinery costs and low margins in a very

competitive retail sector. The French refining industry, like most, of the

European refining industry, faces problems of over-capacity. The trend is

towards rationalization and negotiations concerning possible refinery closures

are still ongoing. Capacity has actually risen slightly, however, due to

improvements in refining processes. There is an imbalance in France between

production of and demand for gasoline and diesel. Demand for diesel is

particularly high in France, as a consequence of an advantageous tax regime

applied to diesel vehicles and diesel products. Furthermore, the existing

refineries do not have the desulphurization capacity to produce large quantities

of the low sulphur diesel required by EC legislation. The industry is currently

pressing for a removal of the market distortions of the tax regime.

The retail petrol station sector has seen a significant rise in market share by

supermarkets, which currently control just under 50% of the market.

Supermarkets have been criticized by the oil companies for their low prices;

increased competition has led to the closure of many outlets by oil companies.

Control/structure

The downstream oil industry in France is controlled by the private sector. The

‘refining sector is dominated by five major international companies including

total (28.8) mt capacity), BP (10.6 mt capacity), mobile (3.2 mt capacity) and

companies Rhenage de Raffinage (4 mt capacity).

The retail petrol station sector is in private hands. The sector has seen, a

significant rise in market share by supermarket chains, which control 49.5% of

the market. Oil comp anises control 46.1% of the market and 4.4% is controlled

by independent retailers. The total number of retail outlets in France is 17, 94.

In 1996, 650 outlets were closed by oil companies and 250 new outlets were

opened by supermarkets. The supermarkets have been criticized for the practice

of keeping prices low and taking advantage of competition law. Oil companies

have been lobbying for the modification of competition law and for a ban on

what they consider to be “abusive low prices”.

2.7.2 Germany-Background

Germany is a net importer and consumer of oil. Oil consumption in 1997 was

1136.5 mt, making Germany the biggest consumer in Europe and the fourth

biggest in the world. In addition to being a significant consumer and importer,

Germany is also a major refiner and is the second largest in Western Europe and

the sixth largest in the world. In 1997 crude distillation capacity of 108 mt per

year (am increase of 3 mt on 1996) accounts for 13% of total capacity in

Western Europe.

Although there was a small increase in capacity in 1997, over the past ten years,

40% of the total refining capacity in Germany has closed, which is indicative of

the overall trend of refinery rationalization in Europe. The refining industry in

Germany is large but fragmented, with a significant number of companies being

involved in refining. The petrochemical industry is attractive to participants in

the downstream oil markets, as Germany is geographically well-positioned to

supply the demands of the rest of Europe.

Currently the refining sector is unprofitable, but is improving slightly: Cost

difficulties are due to stringent environmental requirements and losses are large.

In addition, oil is imported from Rotterdam on barges and fluctuates in price,

depending on the depth of the water.

The retail sector in Germany has seen much development since reunification of

the country. The former GDR was monopolized by state-owned Minol, but

private oil majors now dominate the marketplace. As in other European

countries, stricter environmental legislation and increasing competition has led

to the closure of several less profitable pullets. The trend is towards bigger but

fewer petrol stations with the supermarkets competing for market share with the

oil companies.

Control/Structure

The German refining industry is controlled by the private sector and is relatively

fragmented; no individual company has greater than a 15% share of total

refining capacity.

The retail market is also controlled by the private sector and most of the western

oil majors are represented. Aral a joint venture between veba and mobil, has

over 2,500 outlets, shell has 1,700 outlets, De has 1,600, Esso has over 2, 500,

BP has 1,400 and conoco has 600. Rationalization of outlets has started.

2.7.3 Ita1y Background

The Italian refining industry is the largest in Europe as at the end of 1997, in

terms of crude distillation capacity. Italy had a balanced primary distillation

capacity of 117.7 mt in 1997. ENI, the state oil, gas, refining and

petrochemicals holding company, is Europe’s fourth largest refiner. Italy is a net

importer and consumer of oil, importing roughly 95% of its requirement, mainly

from North Africa and the Persian Gulf. The low margins in the Italian refining

industry are in line with low European refining margins.

Italy has the largest retail network in Europe in terms of number of sites, due to

the historically high level of state protection, which encouraged the

development of smaller, more numerous retail outlets. A plan is being

implemented to reduce the number of stations and to also improve the efficiency

of the distributor network as in the rest of Europe, as a consequence of the need

for stricter environmental legislation.

Control/Structure

The Italian refining industry is made up of fifteen refineries and is the most

fragmented in Europe. 40% of Italy’s refining capacity is accounted for by Agip

petrol, a subsidiary of the state-controlled ENI. Exxon and the Italian operator

Saras also have significant capacity, with the rest dispersed amongst smaller

companies. There are, however, few of the oil majors among the participants in

the refining sector, as historically the regulation of the sector deterred entrants

to the market. ENI, through Agip petrol, controls 30% of the retail the retail

sector. Esso is the largest private company in the retail sector and 15% of this

market. Rationalization is expected in the retail sector, which is characterized by

too many service stations and a distribution networks.

50% of ENI, the state oil, gas and petrochemicals holding company, was sold in

three tranches during 1995, 1996 and 1997, with a 3% ownership ceiling placed

on any single investor.

For many years, the Government imposed tight regulations governing petroleum

products prices. In 1993 petroleum prices were deregulated, although there was

some Government monitoring. Petroleum product prices were completely

deregulated in May 1994 and are now freely established by operators.

2.7.4 Kuwait Background

Rebuilding and development work is taking place on pipelines, storage tanks,

refineries and terminals to restore Kuwaiti oil distillation capacity to pre-Guif

War level (prior to the invasion by Iraq in 1990). Total refining capacity of

Kuwait Petroleum Corporation’s (KPC) three refineries in Kuwait was 41 mt in

1990 before the invasion and 42 mt in 1998. KPC intends to increase refining

capacity to almost 50 mt by 2005. Examples ofexpansion plans include an

additional 5 mt capacity at Shuaiba Refinery and upgrading production capacity

at Mina-al-Ahmadia and Mina-al-Abdullah refineries. In addition, work is

continuing at export terminals to increase loading capacity. KPC acquired half

of Agip’s Milazzo refinery in Italy, which has a refining capacity of 15 mt,

together with 300 filling stations. The acquisition will increase KPC’s total of

filling stations to 3,500 across the world and will also provide KPC with an

Italian refining operating again. KPC also has a refinery in Rotterdarn, which

has a capacity of 4 mt. Kuwait is a major exporter of oil and exports over 90%

of its output (99.4mt in 1998), the majority of which goes to the Asian market

and the remainder to Europe and the U.S.

Control/Structure

The downstream oil industry in Kuwait is state-controlled. The state-owned

Kuwait National Petroleum Company (KNPC), a subsidiary of KPC, is

responsible for refining and Kuwait Petroleum International, also a subsidiary of

KPC, is responsible for marketing.

The downstream oil sector was until recently entirely state-owned. In 1997, the

Supreme Petroleum Council performed a study to assess the possibility of

selling one third of Kuwait’s ninety petrol stations, however no steps have been

taken in this regard so far. KPC has reviewed its foreign investment strategy and

is seeking markets. It needs to find financial assistance for the costs incurred

during the Gulf War. It will focus on downstream projects and expansion of

distribution networks in Europe.

2.7.5 Japan-Background

Japan has no significant reserves of natural gas or oil, but is a major importer,

refiner and consumer of oil and products, in addition to, being a major importer

and consumer of gas. The majority of oil is imported from the countries of the

Middle East and smaller portion of supplies comes from china, Indonesia and

Mexico. Japan is participating in several upstream oil and gas projects abroad,

which could lead to diversification of oil supply sources in the longer- term. The

country has a refining capacity of 247 mt per year, which represents 6. 4% of

the world’s, total and is the largest refining capacity in Asia. Japan consumed

266.4 mt of oil in 1997, marking it the second largest consumer in the world

after the US. Oil constituted 53% of primary energy consumption in 1997.

Control/Structure

Japan has 44 refineries, which are controlled by the private sector. The retail

industry is also controlled by private companies. Until the 1 April 1996, the

energy sector in Japan was controlled by the ministry of Trade and industry of

Japan and was a regulated market, where permits for the import of products

were restricted to qualified companies. After this time, the domestic products

market was expected to be more competitive, due to the unregulated import of

petroleum of supply petroleum products through deregulation and competition.

Since the introduction of regulation, imports of refined products have been

relatively small, but have had the beneficial effect of pushing down end - user

prices. The downstream oil sector is in private hands, with the deregulation of

the oil products market, the private retail sector, which is independent of oil

refiners and suppliers, is growing.

2.7.6 Australia- Background

The refining sector in Australia is characterized by over-capacity. The country

has a distillation capacity of 38mt per year. The continuing financial crisis in

Asia and low world oil prices have contributed to the lowest petrol prices in ten

years in Australia in turn has increased domestic demand for petrol. The recent

crude price reversal has begun to flow through to petrol price with significant

increases. The Federal Government has recently withdrawn a draft oil code to

apply to downstream oil. Political issues prevented its ratification by the Federal

parliament. This has resulted in continuing difficulties being experienced by the

downstream sector. Highlights of the proposed code were that price surveillance

of petrol prices was to be removed, open access to major oil terminals would be

available and restrictions on site ownership would be removed, allowing greater

flexibility on retail operations.

Control/Structure

The downstream industry is controlled by the private sector. There are no state

owned refining or retail marketing companies. There are eight refineries in total,

the largest being BP’s Kwinana Refinery, followed by the Kurnell refinery,

which is owned by Australian Petroleum a JV between Caltex and Ampol) and

the Shell-owned Geelong refinery. The proposed recent changes in policy

mentioned above would have allowed more company., as distinct from lessee-

owned sites. Competition is expected to increase with further downward price

pressure.

2.7.7 Venezuela-Background

Venezuela is the most important country in South America in terms of the oil

and gas industry; its oil and gas reserves and production are by far the biggest in

the region. It is also a key player in terms of attracting foreign investment into

the region. Oil consumption in 1997 was 19.7 mt, an increase of 3.7% on the

previous year; domestic demand its set to double in the next ten years. As global

demand grows and output decreases in the rest of the world, Venezuela will

become a major oil exporter. Oil export revenues currently makeup over 70% of

total export earnings. Exports of oil totaled just under 154 mt in 1997, 40% of

which went to the US. Energy integration is a major characteristic of the Latin

American energy market and the construction of an oil pipeline between

Argentina and Chile in 1996 enables Venezuela to export oil to northern Brazil.

Venezuela is Brazil’s third largest supplier.

Venezuela has a crude oil refining capacity of 59 mt per year. PdVSA, which

controls Venezuela’s refining sector, also has a refining capacity of 60 ml per

year abroad. Most of it international refining capacity is located in the US and

the remainder is in Europe and Latin America. Venezuela exports one third of

its refined to the US. There are plans to upgrade both the domestic refineries

and PdVSA’s international refineries, in order to create a product mix better

suited for export markets.

Control / Structure

Venezuela’s seven refineries, oil pipelines, oil terminals and the retail sector are

controlled by PdVSA, (Petroleos de Venezuela), the state-owned oil company.

The industry was nationalized in 1976. I3itor, a PdVSA subsidiary, is

responsible for the production and distribution of Onmulsion, a bitumen-based

boiler fuel and Pequiven, also a PdVSA subsidiary, is responsible for the

petrochemical industry PdVSA distributes refined products in the US through

its US marketing subsidiary Citgo, which has the largest retail network in the

US with 14,500 petrol stations.There are plans to deregulate the retail sector in

Venezuela through the removal of PdVSA’s monopoly on the retail sector.

2.7.8 United States - Background

The industry is dominated by large, highly efficient refineries, which are

concentrated in the Gulf Coast, Mid-Continent and California. Recent

environmental concerns have forced refiners into significant capital spending to

reduce emissions and upgrade products. The Clean Air Act has imposed

additional restrictions on automobile emissions, which have forced refiners into

cleaner burning fuel production. Closures are not anticipated, given the potential

for significant environmental clean-up obligations.

Marketing companies are operating in a highly competitive, regionalized

marketplace. Numerous transactions involving joint ventures and acquisitions

and disposals of retail networks are occurring, in order to streamline the

business.The US consumed 846.5 mt of oil in 1997 and imported 489.6 mt of

crude oil andproducts. Imports came from Canada (72.7 mt), Mexico (68.0 mt)

South and Central America (132.1 mt), the Middle East (86.6 mt), West Africa

(68.3 mt),Western Europe (32.9 mt) and other regions (28.9 mt). The US also

exported 41.3Imt of products and 5.6 mt of crude oil in 1997 primarily to

Mexico, South and Central America, Western Europe and Canada among other

countries.

Control/Structure

The downstream industry, is controlled by the private sector.. Refineries have

always been in the private sector under a regulatory environment, which

monitors output and operations.

2.7.9 Analysis of Strategic Prepositions for Deregulating the Downstream

Sector

Preamble:

The federal government set up a committee to explain certain issues of

liberalization, and to counter the arguments of those opposed to the notion and

concept of deregulation of the downstream sector of Nigeria’s petroleum

industry (This Day Newspaper, August 24, 2003).

As expected, public opinion about deregulation in Nigeria covers a wide

spectrum, and cuts across all sides of the argument. Some Nigerians holds the

view that deregulation cannot be complete, whether in the downstream sector or

indeed, in any other sector of the national economy. However, deregulation is

seen as desirable in freeing government of its concurrent control, and

involvement in the businesses of refining, importation and distribution of

refined petroleum products in the Nigerian market. In their opinion, the

deregulation of the petroleum industry in Nigeria should be implemented in

phases, so as to enable the state-owned monopolies to regain efficiency, before

their full privatization.

However, some others insist that complete deregulation, including the total, and

final dismantling, unbundling, and subsequent wholesale privatization of all

state- owned petroleum businesses, should proceed without further delay, with

maximum dispatch, for the continued, and meaningful survival of the Nigerian

petroleum industry in 21st century.

Another school of thought strongly believes that the Nigerian petroleum

industry must not be liberalized, or deregulated, or privatized completely, for

whatever reason, and that the status quo should remain, may be, with some

minor fine tuning made, “here and there”, to improve efficiency, as appropriate,

“in the overall national interest”. Essentially, this is the implied position of the

masses through the Nigerian Labour Congress (NLC). (Kombo, M.B. 2004).

In relation to best practice in the global oil industry, Kombo, 2004 & Adams,

2001 recommend the understated strategies for deregulating the Nigerian oil

industry (Ibid 2.7.10-2.7.14) http: II www. nigerdelta congress. Corn /

marticules / modesofderegulation inthedow.htrn).

2.7.10 Four Strategic Propositions for Deregulating

The downstream sector:

(1) Supply side deregulation

(2) Demand side deregulation

(3) Complete deregulation

(4) Retention of the status quo

2.7.11 Strategy 1: Partial Deregulation of only the Supply Side

The basic assumptions of this strategy are that:

� The federal government is sensitive to the inadequacies of the existing

state- owned petroleum refining, and refined products supply and

distribution system in Nigeria, and desires to maximize supply sources

for the refined products market in the country.

� Federal government monopoly of refining, pipeline operations, and

primary distribution from the state-owned storage depots would be

completely unbundled, and abolished.

� Local and foreign private investors would be willing to take over the

state- owned facilities (refineries, depots, and pipeline systems) in their

current state of dilapidation, disrepair and poor performance, and operate

them efficiently and profitably thereafter.

� Private refineries would procure crude oil at competitive rates, and sell

their refined products profitably, and at international prices, both in

Nigeria and beyond, as desired by the refiner.

� Private importers would procure refined petroleum products and sell such

products at deregulated prices, in line with prevailing market prices.

� Barriers to new entrants into private refining, pipelines and depot

operations would be eliminated.

Hypothetically, with anti-monopoly policies (which are: not yet in place in

Nigeria) and with competition among private refiners, the demand for petroleum

products could be met and sustained. However, because of the low buying

power of the consumers in the Nigerian market, the demand for petroleum

products sold at international market rates, would be reduced significantly.

Profitability of business at the retail end of the downstream sector would be

dictated mainly by economies of scale: only the big players in the petroleum

marketing sub-sector would survive. Consequently, up to 95% of existing

independent markers may cases to be in their present form. Alternatively, there

could be mergers among weaker independent marketers (with between 1 - 10

outlets) to compete with the present top major marketers, In short the market

would be segmented into majors, merged minor independent marketers, and

minor petroleum products markets.

The first generation of post-deregulation private refineries in Nigeria would be

the stand-alone type: In this strategy, private refineries would manufacture

petroleum products, and distribute them to targeted segments of the Nigerian

market from their loading facilities within the refinery complex. In other words,

there will be no private pipeline operating companies to move refined products

from such private refineries to their marketers.

The predominant mode of refined products distribution would be outlet-specific

truck loading, mainly to domestic retail affiliates of the refiner In short, private

Nigerian refiners would initially secure their market, built around the retail

outlets of groups of independent marketers, while potential private foreign

refiners, if any, would preferably target their distribution at both the Nigerian,

and export markets, possibly through the Majors.

2.7.12 Strategy 2: Partial deregulation of only the demand side

The basic assumptions of this strategy are that:

� The federal government, though fully aware of the glaring inadequacies

of the existing state-owned supply and distribution systems in Nigeria,

would prefer- to restructure the decrepit refineries, pipelines and depots,

so as to enable them compete in tandem with the proposed new refineries

that would be built, and managed by private investors.

� Federal government monopoly, control and/or coordination of petroleum

products importation would stop.

� Private investors would have open access to state-owned facilities like

petroleum reception jetties as Okrika, Effurnn, Calabar, Escravos, and

Atlas Cove (Lagos), including the storage tanks at PHRC, WRPC and

KRPC, and at non-discriminating tariffs, for expediting the logistics of

importing petroleum products in Nigeria.

� Private products marketing companies would - form strategic alliances or

mergers in order to optimize operating costs.

� Price fixing “uniform pricing”, and so-called “bridging” subsidies by the

federal government would stop.

� Barriers to new entrants into wholesale, or/and retail marketing of

petroleum products would be eliminated by law.

Clearly, because of the lead-time to effective attainment of improved

performance, and adequate supply of refined products by the existing state-

owned refineries coupled with the lead-time necessary to build and operate new

private refineries to complement existing supply sources, the availability of

refined products may not be much different from what obtains currently.

Therefore, the market segments (Majors and Independent) may also alter very

marginally.

However, opportunities exist for private importers to complement shortfalls in

product stocks. With this strategy, there may be an upsurge in private

importation of petroleum products. Recent acquisition of imports reception

facilities by Independent marketers indicates a potentially competitive market

for both marketer groups: Majors and Independents. This strategy forces

mergers on the exiting Independent marketers in order for them to be cost-

effective.

The emergence of post-deregulation private refineries in Nigeria would be very

dependent on the policies of the Federal government with respect to the price of

crude oil allowed for both refiners, the state’ owned refining companies and the

private ones. With the current disparity between the open market price of crude

oiland that conceded to the state-owned refineries, it is not likely for private

refiners to invest under such conditions. In this strategy, the state-owned

refineries would remain protected, probably selling their products at

international rates. Though pipeline operations may still be monopolized by

NNPC, very likely “bridging” and pricing” could cease to apply. Potential

private Nigerian and foreign refiners would not be attracted to invest under such

policy regimes. Consequently, the only possibility for expansion of refining

capacity would be dependent on new state –owned refineries that may be added

to the existing pool.

2.7.13 Strategy 3: Complete deregulation of the Downstream Sector The

Basic assumptions of this strategy are that:

� The federal government would ensure the effective implementation of a

planned transition to comprehensive deregulation of the petroleum

industry (upstream and downstream) in Nigeria.

� The federal government would enforce applicable conditions for

stimulating competition in the market, while concurrently discouraging

monopoly behaviour in the domestic retail market.

� Private suppliers of crude oil to Nigerian refineries would be encouraged.

� Prices of crude oil and refined products would be set in line with

international benchmarks, and prevailing foreign exchange rates.

� All NNPC Joint Venture contracts with multinational E & P companies

operating in Nigeria would be replaced with Production Sharing contracts

(PSC).

� Crude oil produced by private operators would be theirs to sell at

competitive market prices in Nigeria or overseas.

� NNPC and its subsidiaries would be restructured in phases and

subsequently broken up.

� Regulatory role of the DPR must be redefined to enhance its capacity to

effectively monitor and enforce compliance as an independent agency of

the federal government. Or two (2) separate and independent downstream

policy formulation and enforcement agencies to either complement or

replace DPR., would be established by the federal government to monitor

the sector effectively in the post regulation era.

� A mass of qualified private Nigerian investors exists that can take over

the state - owned downstream petroleum businesses, now ran by NNPC,

and ménage them efficiently and profitably.

� Private businesses may import refined petroleum products and sell such

products at competitive prices.

� Unnecessary (legal and illegal) impediments, including the existing

overbearing procedures for granting licenses to private refiners, and other

potential investors in the downstream sector, must be abolished by law.

� There must be open access to state- owned, facilities such as jetties,

storage tanks, and pipelines, through non- discriminatory tariffs to private

operators.

� Price fixing in any guise, by government must stop.

With a well- articulated plan of complete deregulation of the downstream of the

Petroleum industry in Nigeria. The availability of crude oil to the local

refineries would be based on competition among private suppliers. This would

encourage private E & P investments, particularly local marginal field

operators. With the removal of both monopoly advantages, and mandatory JV

contracts with multinational E & P companies from NNPC, the state owned

company would undertake more PSC contracts with foreign and Nigerian

partners in the short to medium terms, if ownership of the crude oil were

reviewed in favour of the producer.

At the state of complete deregulation of the downstream, private crude oil

marketers could compete to supply feedstock to the local refineries, either as

affiliates, or as independent suppliers. Private pipeline companies could operate

the existing petroleum products primary distribution networks, and depots. This

strategy forces mergers on all players in order for them to be globally

competitive.

The strategy would also result in major refiners preferentially directing their

distribution to their outlets in Nigeria and overseas. Supply and primary

distribution would ultimately be under the control of the big players in this

strategy.

2.7.14 Strategy 4: Fine-tuning the status quo

The basis assumptions of this strategy are that:

� Deregulation of the Nigerian oil industry is not the “security, and overall

national interest” of the country, and therefore, not desirable.

� Existing inefficient government-owned facilities in the downstream

sector can be satisfactorily upgraded.

� More competent personnel could be sourced from within and outside

Nigeria to manage the infrastructure of the oil industry.

In a sense, this strategy is also the most probable scenario in Nigeria. In this

strategy, the status quo remains: i.e “Business unusual as usual”. Distribution

systems, are near-zero with no meaningful competition to the existing sick, and

severely dilapidated refineries, and product pipeline infrastructure. Predictably,

the entire Nigerian petroleum industry becomes progressively moribund,

unattractive to both Nigerians and foreign investors alike, in both upstream and

downstream sectors; it might come to a grinding halt, and finally collapses

especially if the national monster, corruption, is not exercised.

2.8 Summary of the Review

Back in 1970, Toffler, in Future Shock describes a trend towards accelerating

rates of change. He illustrated how social and technological norms had shorter

lifespan with each generation, and he questioned society’s ability to cope with

the resulting turmoil and anxiety. He concludes hat in past generations periods

of change were always punctuated with times of stability. This allowed us to

assimilate the change deal with it before the next was upon us. But towards the

close of the 20th century, the stability periods become shortened thereby causing

much conflict and opportunity in the business world (Toiler 1970 & 1980). As

mentioned somewhere above, hundreds of authors, particularly since the 1990s,

(Imaga 2000) have attempted to explain what this means for business strategy.

To brace up to this challenge, Dudik (2000) says that organizations must

develop a mechanism for understanding the source and level of complexity it

will face in the future and then transform itself into complex adaptive system.

Hamel (2000) summarized the adaptive system as a strategic process which

involves designing a custom strategy for the specifics of each situation.

Bass et al (1900 & 1992) note: Leadership styles of managers and executives

have a direct effect on individual and corporate performance in business.

Laissex-Fair, transformational and transactional leadership styles were

recognized. Though attributes that are seen as characteristics of leadership styles

were recognized, they vary across cultures (Den Hartog et al 1999). Some are

universally endorsed as either contributing to leadership or as impediments. By

and large, leadership styles of organizations are determined by the business

environment as well as the norms and value systems of host societies in general.

The transition to a deregulated environment by the petroleum industry is

accompanied by many changes. Most notable amongst others is learning to

operate in a competitive environment different skills and capabilities are

required of managers of affected firms. Grievous mistakes are expected

(Studness 1996); thereby leading to increase in firms’ risk and new

opportunities for growth. Nevertheless, if deregulation is properly implemented,

it should result in the provision of adequate services at reasonable rates.

The results of researchers regarding the relationship between diversification and

risk are mixed (Amit et al 1988) but most of them support relationship between

risk and diversification. The mixed findings are likely die to neglect of the role

of e firms’ environment on risk by the researchers.

The benefits of deregulation exceed it costs. Among the benefits cited for both

industrial and individual consumers are that deregulation: it unleashes the power

of a self-correcting free market, gives customers services at prices and quality

levels that they are willing to pay for, encourages selective increases in capacity

and merger and acquisition activities. It also promises increase in employment

opportunities.

It is though imperative to customize strategies to the specifics of every situation,

but the universally accepted pivot on which such strategies should rotate is best

practice. The operational strategies in the global oil industry, particularly, the

downstream sector of notable oil producing countries of America, Europe and

Asia are examined. Accordingly, applicable strategies for deregulating the

downstream sector of the Nigerian Petroleum Industry have been benchmarked

against her counterparts above. The strategies are workable but corruption must

be reduced to its barest minimum in Nigeria.

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CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

The issue of what methods and procedure a researcher adopts constitute a vital

aspect of any research work. Every researcher must, as a matter of necessity,

adopts a method that will help elicit the idea of the study under consideration.

Also any procedure chosen by a researcher must be able to give the reader a

synopsis of how the study will be carried out and background information

concerning the evaluation of the findings. In the course of the research, one

discovers and recognizes the fact, that there are many methods that could be

used. Some of these methods include, interview and survey methods.

It is equally noted that certain methods give no room for computation while

some give but never helps the researcher to a justifiable end. Human nature is

not static hence the need for facts obtained in the study to be empirically

justifiable is of paramount importance. This chapter therefore aims at assessing

and picking the most appropriate research method to achieve the purpose of the

study.

The study was carried out in order to examine the strategic effects of

deregulation on the management of firms in a deregulated economy: A study of

the petroleum marketing firms in the downstream sector of the petroleum

industry in Nigeria. The study is sectoral based. It is not a study of a single or

two petroleum companies. In this chapter the researcher will examine:

• The research design

• The sources of data

• Instruments of data collection

• Method of data collection

• Population /sample size determination

• Validity and reliability of instruments for data collection

• Procedure for data collection

A study of selected petroleum marketing firms in Nigeria (Niger Delta).

3.2 Research Design

Planning is essential in research and experimental research needs to be planned.

Planning in research is called research design. Iii a pure research context, it

refers to the total constructional plan sr structure of the research framework

(Ikeagwu, 1998). Research design serves as a road map or plan of action

showing what and how the researcher will carry out step-by-step procedure of

accomplishing the research endeavour.

For the purpose of this research, the descriptive method anchored on sample

survey would be employed. Descriptive entrails the systematic collection and

prescription of data to give a clear picture of a parucural situation it can be

carried out on a small or large scale (Eboh, 1998). The sample survey is a

process of analyzing only a part of the target audience in such a manner that the

part so selected could be deemed to be a true representative of the entire

population. Thus, information so generated, could be used for generalization of

the whole population.

3.3 Sources of Data

The data for this research will come from both primary and secondary sources.

The primary source mould involve the collection of data from the managers of

these petroleum marketing firms through the use of oral interviews and

questionnaires while the secondary data will be collected from the internet, text

books and other available literatures.

3.4 Instrument for Data Collection

The instrument to be used for primary data collection will be the questionnaire

and oral interview. The questionnaire will consists of two sections: Section ‘A’

the respondent’s personal data and Section ‘B’ (the research information)

There would be closed-ended (structured) questions in which the respondents

are given options as they relate to the questions asked. This is intended for easy

response. There would also be the open-ended (unstructured) questions which

will give the respondent opportunity to given answer to the questions based on

their views without restricting them to any option.

3.5 Method of Data Collection

Data collection procedure will be basically by direct contact. The researcher

will personally visit the operators in their places of work or administer the

questionnaires on them. Oral interviews will also be conducted.

3.6 Populations/Sample Size Determination

The researcher will administer the questionnaires and oral interviews on a

population comprising basically, top managers of the petroleum marketing firms

drawn from four states of Edo, Delta, Bayelsa and Rivers. For obvious

constraints, not every member of the population could be reached, in view of

this, they four states were randomly chosen out of the six states of the south-

south geo-political zone of Nigeria.

The Yamani’s formular is used to determine the sample size since the

population known:

The formular is: n = N

1+ Ne2

Where

n = Desired sample size

N = Population of the study

e = Limit of tolerable error (using 10%)

I = Theoretical constant

Assigning values to these symbols the sample size would be calculated thus:

1570

n = _____________

1+1570x (0.1)2

n 1570

1+ 15.7

n = 1570 = 94012

16.702

3.7 Validity and Reliability of Instrument for Data Collection

The researcher will administer the questionnaires to respondents twice. On the

first occasion, the researcher would collect the responses from the respondents

and record same. After about an interval of three weeks, the researcher will

administer the sample questionnaire to the respondents again and collect their

responses. These would be compared with responses obtained during the first

visit.

3.8 Procedure for Data Analysis

The data that would be collated from the study would be analyzed with the aid

of simple percentages and Chi-Square (X2)

Percentages (%)

Percentages would be used for this research because to its ability to transform

questionnaires into values and attributes which were quantitative in nature. It

would enable the researcher to analyze the variables independently.

The formulated hypotheses would be tested using a non-parametic statistics

called chi-square, X2. The formular for calculating the expected frequency is as

follows:

Expected frequency = Row Total x Colum Total

Grand Total

The formular for calculating the Chi-square (X2) is as

X2 = (O - E)2

E

Where

O = Observed frequency

E = Expected frequency

O-E = Deviation

(O-E)2 = Deviation square summation

In our calculation, we would either confirm or reject the null hypothesis. The

null hypothesis would be confirmed if the discrepancy between the observed

and expected frequency is so small that the difference could be attributed to

chance.However, the null hypothesis could be rejected, if we consider the

discrepancy so that we could not attribute the departure to chance.

Addition to the above, there is another consideration in the use of Chi-square

(X2) which is important. It is the assumption of a certain level of confidence or

error margin. The degree of freedom, which is a characteristic is calculated thus:

df = (R - 1) (C - i)

Where

df = Degree of freedom

R = Number of rows

C = Number of columns

Decision Rule in the use of Chi-square

There are two sets of figures that are relevant to the decision making rule in the

of Chi-square (X2). These two variables are the Chi-square calculated value (X2)

and the chi-square critical value (X ). The rule in calculating the chi-square

value (X2) and the chi-square critical value (X ) are as shown below.

Reject H0, if X2 > X

Accept H1, if X2 ≤ X

Where

Ho = Null hypothesis

H1 = Alternate hypothesis

X2 = Calculated value of chi-square

X = Chi-square critical value

> = Greater than

< = Less than

≤ = Less than or equal to

2

0

2

0

2

0

2

0

2

0

CHAPTER FOUR

PRESENTATION AND ANALYSIS OF DATA

4.1 Presentation and Analysis of Data

In this chapter, the researcher analyses the various data collected from the

respondents. A total of 95 copies of the Questionnaires were administered to the

respondents. Out of these, 6 copies were not returned while one was

inappropriately filled and so considered unsuitable for analytical purposes.

Consequently, only 88 copies of the questionnaire were analyzed. This

information is shown in table 4. 1 below:

Table 4.1: Questionnaire Distribution

S/No Questionnaire No of respondents %

1 Returned 89 93.7

2 Not returned 6 6.3

3 Not used 1 1.1

4 Used 88 92.63

5 Total distributed 95 100

Source: From Field Investigation

Table 4.1 shows that 93.7% of the questionnaire distributed were returned, 6.3%

were not returned, 1.1% was, not suitable for use, 98.9% were used in this

analysis.

Table 4.2: Sex Distribution of Respondents

S/No Sex No of respondents %

1 Males 67 76.1

2 Female 21 23.9

Total 88 100

Source: From Field Investigation

Table4.2 shows that 67 respondents (76.1%) were males while 21 respondents

(23.9%) were females.

Table 4.3: Age Distribution of Respondents

Age No of respondents %

20 – 29 years 16 18.2

30 – 39 years 35 39.7

40 – 49 years 24 27.3

50 years and above 13 14.8

Total 88 100

Source: From Field Investigation

Table 4.3 shows that 16 respondents (18.2%) were 20- 29 years; 35 respondents

39.7%) were from 30 - 39 years; 24 respondents (27.3%) were 40 - 49 years and

13 respondents (14.8%) were 50 years and above.

Table 4.4: Educational Background of Respondents

Educational qualification No of respondents %

WASC/GCE 7 12.6

OND/NCE/HSC or Eq 12 13.6

HND/B.Sc/B.A or Eq 31 35.2

MBA/MSc/M.A 5 5.7

Ph.D 5 5.7

Others 6 6.8

Total 88 100

Source: From Field Investigation

It can be seen from table 4.4 that 7 respondents (12.6%) held WASC/GCE O

level, 12 respondents (13.6%) held OND/NCE/HSC or an equivalent

qualification; 31 respondents (35.2%) had MBA/M.Sc/M.A or an equivalent

qualification; 5 respondents (5.7%) had Ph.D, while 6 respondents (6.8%)

possessed unspecified qualification. However, the table reveals that majority of

the respondents had either HND/B .Sc/B . A or their equivalents.

Table 4.5: Distribution of Respondents’ Organization

Organization No of respondents %

Major Marketers 53 60.22

Independent Marketers 35 39.78

Total 88 100

Source: From Field Investigation

Table 4.5 shows that 53 respondents (60.22%) were staff of major marketers,

while 35 respondents (39.78%) belong to independent petroleum products

marketers.

Table 4.6: Distribution of respondents’ working experience in the sector

Years of experience No of respondents %

Less than 5 years 12 13.6

Between 5 and 10 years 19 21.6

Below 10 and 20 years 33 37.5

Over 20 years 24 27.3

Total 88 100

Source: From Field Investigation

Fable 4.6 indicates that 12 respondents (13.6%) have worked for between 1 — 5

years, 19 respondents (21 .6%) have worked for between 5 — 10 years in the

sector;33. respondents (37.5%) have worked between 10 - 20 years and 24

respondents (27.3%) have put in for over 20 years of service.

Table 4.7: Knowledge of what deregulation of downstream sector is about

Responses No of respondents %

Yes 72 81.8

No 16 18.2

Total 88 100

Source: From Field Investigation

Table 4.7 shows that 72 respondents (8 1.8%) responded “yes” indicating that

they knew what deregulation was all about while 16 respondents (18.2%)

responded “No” indicating that they did not know what deregulation was about.

Table 4.8: Respondents reaction on strategic capacity to adjust to

deregulation

Responses No of respondents %

Strongly agree 7 8.0

Agree 8 9.1

Undecided 3 3.4

Disagree 47 53.4

Strongly disagree 23 26.1

Total 88 100

Source: From Field Investigation

Table 4.8 reveals that 7 respondents (8%) strongly agree that strategic

management of firms in the downstream sector have the capacity to adjust to the

policy of deregulation, 8 respondents (9.1%) however, agree with the

proposition; while 3 respondents (3.4%) were undecided, 47 respondents

(53.4%) disagree and 23 respondents (26.1%) strongly disagree.

Table 4.9: Respondents reaction to the benefit of deregulation policy by

stakeholders

Responses No of respondents %

Strongly agree 34 38.6

Agree 26 29.5

Undecided 6 6.8

Disagree 13 14.8

Strongly disagree 9 10.2

Total 88 100

Source: From Field Investigation

Table 4.9 indicates that 34 respondents (38.6%) strongly agree that major

marketers benefit more than independent marketers, 26 respondents (29.5%)

merely agree, 6 respondents (6.8%) were undecided while 13 respondents

(14.8%) disagree and 9 respondents (10.2%) strongly disagree.

Table 4.10: Response to impact of deregulation

Responses No of respondents %

Strongly agree 22 25.0

Agree 19 21.6

Undecided 13 14.8

Disagree 18 20.4

Strongly disagree 16 18.2

Total 88 100

Source: From Field Investigation

Table 4.10 indicates that 22 respondents (25%) strongly agree that deregulation

generally does not have negative impact on the downstream sector of the

Industry, 19 respondents (21.6%) agree, 13 respondents (14.8%) were

undecided while 18 respondents (20.4%) disagree and 16 respondents (18.2%)

strongly disagree with the policy.

Table 4.11: The risk associated with strategic change

Responses No of respondents %

Strongly agree 24 27.3

Agree 21 23.9

Undecided 17 19.3

Disagree 15 17.0

Strongly disagree 11 12.5

Total 88 100

Source: From Field Investigation

Table 4.11 reveals that 24 respondents (27.3%) strongly agree with the

assertion, 21 respondents (23.9%) simply agree, 17 respondents (19.3%)

undecided while 15 respondents (17.0%) disagree and 11 respondents (12.5%)

strongly disagree with the assertion.

Table 4.12: Responses to strategies for operating deregulated downstream

sector

Responses No of respondents %

Strongly agree 1 1.1

Agree 3 3.4

Undecided 5 5.7

Disagree 28 31.8

Strongly disagree 51 58.0

Total 88 100

Source: From Field Investigation

Table 4.12 shows that one respondent (1.1%) strongly agree, 3 respondents

(3.4%) agree, 5 respondents (5.7%) undecided, 28 respondents (31 .8%)

disagree and 5 1 respondents (58.0%) strongly disagree that the policy compares

favourably with global best practice.

Table 4.13: Responses to the impact of leadership style on performance and

effectiveness

Responses No of respondents %

Strongly agree 11 12.5

Agree 16 18.2

Undecided 5 5.6

Disagree 24 27.3

Strongly disagree 32 36.4

Total 88 100

Sourc: From Field Investigation

Table 4.13 reveals that 11 respondents (12.5%) strongly agree; 16 respondents

(18.2%) agree; 5 respondents (5.6%) undecided, while 24 respondents (27.3%)

and 32 respondents (36.4%) disagree and strongly disagree respectively to the

assertion that leadership style of managers/entrepreneurs of the marketing

support performance and effectiveness.

4.2 Testing of Hypothesis

Hypothesis 1

Ho: The strategic management systems of the firms in the downstream sector

have the capacity to adjust to the deregulation of the sector.

H1: The strategic management systems of the firms in the downstream sector

do not have the capacity to adjust to the deregulation of the sector.

To test this hypothesis, table 4.8 will be used.

Chi-square contingency table

Responses Stakeholders Total

Major Independent

O

E

O

E

Strongly agree 6 (4.22) 1 (2.78) 7

Agree 6 (3.18) 2 (4.82) 8

Undecided 0 (1.81) 3 (1.19) 3

Disagree 39 (28.31) 8 (18.69) 47

Strongly disagree 2 (13.85) 21 (9.15) 23

Total 53 35 88

E = nCnR

n

Using a 5% level of significance and degree of freedom given

df = (R - l)(K -1)

= (5 - 1) (2- 1) = 4

Critical value (X20 ) = 9.49

Decision Rule: Reject the null (H0) hypothesis if the calculated value of the test

statistic is greater than the critical value of 9.49 but do not reject the null

hypothesis if the calculated value of the test statistic is less than the critical

value.

Chi - Square X2 = ∑(O - E)2 E

Chi-square table

O E O – E (O - E)2 (O - E)2/E

6 4.22 1.78 3.1684 0.7508

1 2.78 -1.78 3.1684 1.1397

6 3.18 2.82 7.9524 2.5008

2 4.82 -2.82 7.9525 1.6499

0 1.81 -1.81 3.2761 1.8100

3 1.19 1.81 3.2761 2.7530

39 28.31 10.69 114.2761 4.0366

8 18.69 -10.69 114.2761 6.1143

2 13.85 -11.85 140.4225 10.1388

21 9.15 -11.85 140.4225 15.3467

X2 = 46.2406

From the calculation above, it could be observed that the calculated value

(46.2406) of the test statistic is greater than the critical value (9.49) i.e.

calculated value (X2) > critical value (X )

Decision: Reject the null hypothesis H0 and accept the Alternative Hypothesis

H1. This implies that management systems of firms in the downstream sector

do not have the capacity to adjust to the deregulation the sector.

Hypothesis 2

H0: Benefits derivable from the deregulation policy accrue more to the

independent stakeholders than the major stakeholders.

Hi: Benefits derivable from the deregulation policy accrue more to the major

stakeholders than the independent stakeholders.

Table 4.9 is used to test this hypothesis

Chi - square contingency table.

Responses Stakeholders Total Major Independent

O E

O E

Strongly agree 8 (2.48)

26 (13.52)

34

Agree 7 (15.66)

19 (10.34)

26

Undecided 4 (3.61)

2 (2.39)

6

Disagree 9 (7.83)

4 (5.17)

13

Strongly disagree 6 (5.42)

3 (3.58)

9

Total 53 35 88

2 0

Responses Stakeholders Total Major Independent

O E

O E

Strongly agree 6 (4.22)

1 (2.78)

7

Agree 6 (3.18)

2 (4.82)

8

Undecided 0 (1.81)

3 (1.19)

3

Disagree 39 (28.31)

8 (18.69)

47

Strongly disagree 2 (13.85)

21 (9.15)

23

Total 53 35 88 E = nCnR

n

Using a 5% level of significance and degree of freedom given

df = (R-1) (K-1)

= (5 -1) (2 -1) = 4

Critical value (X ) = 9.49

Decision Rule: Reject the null (H0) hypothesis if the calculated value of

the test statistic is greater than the critical value of 9.49 but do not reject the null

hypothesis if the calculated value of the test statistic is less than the critical

value.

Chi - Square X2 = ∑(O - E)2

E

2 0

Chi-square table

O E O – E (O - E)2 (O - E)2/E

26 13.52 12.48 155.7504 11.52

8 20.48 12.48 155.7504 7.605

19 10.34 8.66 74.9956 7.2530

7 15.66 -8.66 74.9956 7.2530

2 2.39 -0.39 0.1521 0.0636

4 3.61 0.39 0.1521 0.04213

4 5.17 -1.17 1.3689 0.2645

9 7.83 1.17 1.3689 0.1748

3 3.58 -0.58 0.3364 0.0940

6 5.42 0.58 0.3364 0.0621

X2 = 31.868

From the calculation above, it could be observed that the calculated value

(31.868) of the test statistic is greater than the critical value (9.49) i.e. calculated

value >critical value.

Decision: Reject the null hypothesis H0 and accept alternate hypothesis I-1.

This implies that benefits derivable from the deregulation policy accrue more

the major stakeholders.

Hypothesis 3

H0: Deregulation generally does not have negative impact on the management

of firms in the downstream sector of the petroleum industry.

Hi: Deregulation generally has negative impact on the management of firms

in the downstream sector of the petroleum industry.

Table 4.10 is used to test hypothesis 3

Chi - square contingency table

Responses Stakeholders Total Major Independent

O E

O E

Strongly agree 15 (13.25)

7 (8.75)

22

Agree 14 (11.44)

5 (7.56)

19

Undecided 10 (7.83)

3 (5.17)

13

Disagree 7 (10.84)

11 (7.16)

18

Strongly disagree 7 (9.64)

9 (6.36)

16

Total 53 35 88

E = nCnR

n

Using a 5% level of significance and degree of freedom given by

df = (R-1) (K-1)

= (5 -1) (2 -1) = 4

Critical value (X ) = 9.49

Decision Rule: Reject the null (H0) hypothesis if the calculated value of the test

statistic is greater than the critical value of 9.49 but do not reject the null

hypothesis if the calculated value of the test statistic is less than the critical

value.

2 0

Chi - Square X2 = ∑(O-E)2

E

Chi-square table

O E O – E (O - E)2 (O - E)2/E

15 13.52 1.75 3.0625 0.2311

7 8.75 -1.75 3.0625 0.3500

14 11.44 2.56 6.5536 0.5729

5 7.56 -2.56 6.5536 0.8669

10 7.83 2.17 4.7089 0.6014

3 5.17 -2.17 4.7089 0.9108

7 10.84 -3.84 14.7456 1.3603

11 7.16 -3.84 14.7456 2.0594

7 9.64 -2.64 6.9696 0.7230

9 6.36 -2.64 6.9696 1.0958

X2 = 8.7716

From the calculation above, it is observed that the calculated value X2 (8.7716)

of the test statistic is less than the critical value X (9.49) i.e. calculated value <

critical value.

Decision: The null hypothesis is accepted. This means that deregulation

generally does not have negative impact on the management of firms in the

downstream sector of the petroleum industry.

Hypothesis 4

H0: The risk associated with strategic change impede the growth of firms in

the downstream sector of the petroleum industry.

H1: The risk associated with strategic change do not impede the growth of

firms in the downstream sector of the petroleum industry.

Table 4.11 is used to text hypothesis 4

Chi-square contingency table

Responses Stakeholders Total Major Independent

O E

O E

Strongly agree 12 (14.45)

12 (9.55)

24

Agree 13 (12.65)

8 (8.35)

21

Undecided 11 (10.24)

6 (6.76)

17

Disagree 10 (9.03)

5 (5.97)

15

Strongly disagree 7 (6.63)

4 (4.37)

11

Total 53 35 88 E = nCnR

n

Using a 5% level of significance and degree of freedom given by

df = (R-1) (K-1)

= (5 -1) (2 -1) = 4

The Critical value is = 9.49

Decision Rule: Reject the null hypothesis if the calculated value of the test

statistic is greater than the critical value of 9.49 but do not i-eject the null

hypothesis if the calculated value of the test statistic is less than the critical

value.

Chi-Square X2 = ∑(O - E)2

E

Chi-square table

O E O – E (O - E)2 (O - E)2/E

12 14.45 -2.45 6.0025 0.4154

12 9.55 2.45 6.0025 0.6285

13 12.65 0.35 0.1225 0.0097

8 8.35 -0.35 0.1225 0.0148

11 10.24 0.76 0.5776 0.0564

6 6.76 -0.76 0.5776 0.0854

10 9.03 0.97 0.9409 0.1042

5 5.97 -0.97 0.9409 0.1576

7 6.63 0.37 0.1369 0.0206

4 4.37 -0.37 0.1369 0.0313

X2 = 1.5239

From the calculation above, it would be observed that the calculated value X2 =

1.5239 of the test statistics is less than the critical value X = 9.49 i.e. calculated

value < critical value.

Decision: Accept the null hypothesis (Ho) that the risk associated with strategic

change impede the growth of firms in the downstream sector of the petroleum

industry.

Hypothesis 5

H0: The strategies for operating deregulated downstream sector of petroleum

industry compare favourably with the best practice in the global

petroleum industry.

H1: The strategies for operating deregulated downstream sector of the

petroleum industry do not compare favourably with the best practice in

the global petroleum industry.

Table 4.12 is used to text hypothesis 5

Chi-square contingency table

Responses Stakeholders Total

Major

O E

Independent

O E

Strongly agree 1

(0.60)

0 (0.4) 1

Agree 3 (1.81) 0 (1.19) 3

Undecided 5

(3.01)

0 (1.99) 5

Disagree 22

(16.86)

6 (11.14) 28

Strongly disagree 25 (30.71) 29 (20.29) 51

Total 53 35 88

E = nCnR

n

Using a 5% level of confidence and degree of freedom given by

df = (R-1) (K-1)

= (5 -1) (2 -1) = 4

The Critical chi square value is = 9.49

Decision Rule: Reject the null hypothesis if the calculated value of the test

statistic is greater than the critical value of 9.49 but do not reject the null

hypothesis if the reverse is the case.

Chi - Square X2 = (O - E)2

E

Chi-square table

O E O – E (O - E)2 (O - E)2/E

1 0.60 0.4 0.1600 0.2667

0 0.40 -0.4 0.1600 0.4000

3 1.81 1.19 1.4161 0.7824

0 1.19 -1.19 1.4161 1.1900

5 3.01 1.99 3.9601 1.3156

0 1.99 -1.99 3.9601 1.9900

22 16.86 5.14 26.4196 1.5670

6 11.14 -5.14 26.4196 2.3716

25 30.71 -5.71 32.6041 1.0617

29 20.29 5.71 32.6041 1.6069

X2 = 12.5529

From the computation above, the calculated value X2 = 12.5519 of the test

statistics is greater than the critical value X 9.49 i.e. calculated value> critical

value.

Decision: The null hypothesis Ho is rejected and the alternate hypothesis Hi is

accepted. That is the strategies for operating the deregulated downstream sector

of the petroleum industry do not compare favourbaly with the best practice in

global petroleum industry.

Hypothesis 6

H0: The leadership styles of mangers/entrepreneurs of the petroleum

marketing firms support performance and are effective.

Hi: The leadership styles of manager/entrepreneurs of the petroleum

marketing firms do not support performance and are thereby ineffective

Hypothesis 6 is tested with Table 4.13

Chi-square contingency table

Responses Stakeholders Total

Major

O E

Independent

O E

Strongly agree 10 (6.63) 1 (4.37) 11

Agree 13 9.64) 3 (6.63) 16

Undecided 2 (3.01) 3 (1.99) 5

Disagree 7 (14.45) 17 (9.55) 24

Strongly disagree 21 (19.27) 11 (12.73) 32

Total 53 35 88

E = nCnR

n

Using a 5% level of confidence and degree of freedom given by

df = (R-1) (K-1)

= (5 -1) (2 -1) = 4

The critical chi square value is = 9.49

Decision Rule: Reject the null hypothesis if the calculated value of the test

statistic is greater than the critical value of 9.49 but do not reject the null

hypothesis if the reverse is the case.

Chi - Square X2 = ∑(O - E)2

E

Chi-square table

O E O – E (O - E)2 (O - E)2/E

10 6.63 3.37 11.3569 1.7129

1 4.37 -3.37 11.3569 2.5988

13 9.64 3.36 11.2896 1.1711

3 9.36 -3.36 11.2896 1.7751

2 3.01 -1.01 1.0201 0.3389

3 1.99 1.01 1.0201 0.5126

7 14.45 -7.45 55.5025 3.8410

17 9.55 7.45 55.5025 5.8118

21 19.27 1.73 2.9929 0.1553

11 12.73 -1.73 2.9929 0.2351

X2 = 18.1526

From the above calculation value of 18.1526 is greater than the critical value

9.49.

Decision: The null hypothesis is rejected that is the leadership styles of

managers/entrepreneurs of the petroleum marketing firms do not support

performance and are thereby ineffective.

Summary of the Analysis

From the above analyses, the following results were obtained:

1. The strategic management systems of firms in the downstream sector do

not have the capacity to adjust to the deregulation of the sector.

2. The benefit derivable from the deregulation policy accrue more to the

major stakeholder (major marketers).

3. Deregulation generally does not have negative impact on the management

of firms in the downstream sector of the petroleum industry.

4. The risk associated with strategic change impede the growth of firms in

the downstream sector of the petroleum industry.

5. The strategies designed to deregulate the downstream sector of the

petroleum industry do not compare favourably with best practice in the

global petroleum industry.

6. The leadership styles of managers/entrepreneurs of the petroleum

marketing firms do not support performance and are thereby ineffective.

Findings

The study reveals that the strategic management system of the petroleum

marketing firms in the sector lack the capacity to adjust strategically to the

deregulated business environment. The reasons are obvious. In the main, the

firms believe that the issue of strategic planning has nothing to do with their

small corporate structure instead its meant for multinational organization who

can afford the luxury of highly trained personnel and could therefore have a

planning department as a corporate policy in line with other competing

counterparts. Most of the firms are one-man enterprises with at most six (6)

staff who are mainly pump attendants, a supervisor and a driver. None of these

staff looks beyond their daily sales; as for the supervisor he is preoccupied with’

how to replenish stock weekly or fortnightly the owner-manager decides what

quantity to procure at irregular intervals depending on his marketing instincts

and mind-set. No room for long term planning.

They also feel that business is government and that whatever trend the

government brings they follow provided one has capital to stock his station,

thereby relying on government to do the planning for the firms. This attitude

worked for the firms in the old dispensation but disappointing in the present

environment. These firms also believe that the problem of fuel scarcity has to be

resolved by the government alone, at on time will individual source for

petroleum products outside the shore of NNPC. But today, the story is different

with deregulation. The sector has been liberalized and licenses have been

granted to the private sectors to import product from any source at their

disposal. The twist of fate is significantly affecting the independent marketer

which are more of family business. Were some of the independent marketing

firms to pull resources together and import products. They realize that they do

not have storage facilities as the existing ones are owned and exclusively run by

government.

Further revealed by the study is the fact that majority of the manager of the

finns do not have the knowledge to adapt their, firms to the dynamics of the new

business environment. Pascale (1996) hold that “change requires the business

should continuously reinvent themselves” - that is the say what was strength

yesterday becomes the root of weakness today. Over dependence on the old

business tradition has enmesh these firms in a disequilibrium trap. The only way

out is strategic management. The future is a moving target and only strategic

management can hit the bull’s eye. Therefore, in order for firms to foster a

corporate culture that embraces change, they have to hire the right people, this is

the view of Kleirnar (1996). That the conservative bureaucrat who did so well

yesterday is of little use in today’s environment.

Commentators believe that deregulation is desirable both in the short and long

term advantage. However, the regulators seem to ignore the short term

dislocations, which will occur in the industries with daily service obligation or

time is required to add new capacity, hence the sudden announcement of the

policy. They may not have lost sight of the confusion the policy will place on

individual consumers because there must be some sacrifices. In terms of costs

and disruptions that citizens have to, make for any government to achieve the

goal of a policy change. No minding such disruptions, the benefits derivable

from the deregulation of the downstream sector are worth the temporary

troubles. The general consensus is that deregulation can have widespread

benefit, albeit complex ones that are sometimes slow in coming and may not be

equitably distributed, this will help to evaluate the efficiency of the adopted

strategies or date. The various agencies put in place by the government to

supervise the policy will have to go back to the drawing board to further fine-

tune the operational strategies.

Global best practice in the petroleum industry supports deregulation of the

downstream sector. America, Japan, Australia and a host of other oil producing

countries see deregulation as freeing government of its involvement in the

business or refining, importation and distribution of refined petroleum products,

and their experience so far reveals that it is desirable. In Nigeria, it is seen as a

welcome development and further hoped to be so in future if the integrity with

which it is intended will be allowed to say and developed in an ongoing process

for the general good of the nation.

The interviews reveal that the present hiccups in the supply and distribution of

petroleum products particularly the short fall in quantities are not the direct

effect of deregulation policy but are due to factors extraneous to implementation

of the policy. It is common knowledge that the restiveness in the oil-rich Niger-

Delta has been on before deregulation was announced. The vandalized pipeline

transporting network of the NNPC by the aggrieved people of the Niger-Delta

has made it still difficult for crude oil to be delivered to the Warri refinery for

upward of 12 months, thereby rendering the refineries redundant and in

consequence, shortage of petroleum products production and distribution. The

federal government is also wary of excessive – out flow of the nation’s earnings

through petroleum products importation. The incessant theft and diversion of

product by undesirable elements along flow lines which have resulted in wild

infernos claiming many lives are making matter worse. These and a

combination of other factors are the reasons for the temporary fuel scarcity

currently being experienced and not the deregulation per say. It is believed that

all the loose ends will be tightened and the problem.

The low returns experienced by petroleum marketers that is also partly

responsible for their gradual dying off is not peculiar to the Nigeria

downstream. A similar situation also happened in France, where increased

competition led to the closure of many sale outlets by oil companies. The

French downstream sector is characterized by poor profitability which is traced

to a combination of high refining cost and low margins in a very competitive

retail sector. In Nigeria, while some petrol stations are closing up new ones are

being built as well as the taking-over of dying one. Out of the 17,974 retail

outlets in France, about 650 were closed in 1996 while 250 new ones emerged.

Information arising from field investigation and interviews reveal that there is

an increase in activities in the downstream, particularly in the last three years.

Department of petroleum resources (DPR) has it that more licenses have been

granted and more applications for licenses are being resaved from intending

new entrants into the petroleum marketing business. This is evident by the

increase in the number of petrol stations being built here and there. For

example, in warren deanship, only about 34 filling stations were existing as at

1999/2000, but now the number has risen up to 54 and still rising. Similar

increase is also observed in Asaba (Delta State) Benin (Edo State) Yenagna

(Bayalsa State), Port Harcourt (Rivers state) and just to mention a few.

While the number of petrol station are increasing a high management turnover

is also being experienced. The management of most of the old station have

changed hands to new operators, either through lease agreement or outright buy

over. Some of the newly built ones are also involve in this exercise. Most of

them are neck deep in debts as their overheads are almost constant but sales

turnover are low and irregular.

DPR maintain that the demand for petroleum products are on daily increase.

The reason advanced for this is simple; increase population - be it increase in

automobile, industrial plants, or domestic consumption in form of private

energy generation (domestic electric generator) or for cooking.

Surprisingly, it is further noticed that the dismal state of most of the petrol

station does not seem to deter new entrants. Why? Some of the reason are that:

most of the new entrants do not earn their livelihood from the business.

Secondly, most of them are retirees with large sum of idle capital. Thirdly,

others have a strong faith that someday in the near future the sector will boon

again etc.

In Germany, The retail sector had seen much development since the

reunification of the downstream. As it were in France and other European

counties, stricter environmental legislation and increasing competition has led to

closure of several less profitable outlets. The trend is toward synergy among

smaller firms for bigger but fewer petrol stations. The foregoing clearly

indicates that the hallmark of deregulation in the petroleum industry is to

increase competition which is expected to have a downward push in product

prices. This is the position even in Japan, Australia, Italy and America. Be that

as it may, increase competition leads to low returns and even losses in the short

- run. This situation confirms the fact that change of business environment/or

diversification from regulated to deregulated environment does not guarantee

return on investment but increase the risk f the firm. As noted earlier, most

studies found significant relationship between diversification and the risk level

of firm (Lubatkin et al, 1993; Chatterjee et al, 1990; Montgomery & Singh,

1984).

Every environment has its peculiar characteristics, so are the strategies

operational in one country varying significantly from the other. The same

strategy could be employed by two related firms in an industry yet one would

succeed and the other fail or at best achieve different levels of success. The

underlying factors for the above result are the tactical approach to the same

strategy. The global best operational strategy in the downstream is seen to be

deregulation thereby breaking monopolistic barrier and loosening the

overbearing protection enjoyed by certain parastatals. The immediate

consequence of this action has been increase competition as new entrants flood

the industry with a vast array of business concepts and enterprises. In the mid-

term upward, prices of traded commodities are forced down and left to be

determined by the forces of demand and supply such as the case in France,

Germany, etc. This is expected to happen in Nigeria if the deregulation of the

downstream is allowed uninterrupted ie, free from political manipulation.

A hybrid of strategies 2 and 3 are most suitable as the analyses shows in chapter

two of this work. Granted, the successful execution of strategies depends more

on the tactics employed rather than their intrinsic soundness. How far the policy

will lead the nation’s much in the hands of the managers of the policy and the

adaptive prowess of firms in the industry particularly, the petroleum marketing

ones.

CHAPTER FIVE

SUMMARY OF FINDINGS, RECOMMENDATIONS AND

CONCLUSION

5.1 Summary of Findings

Globally, the private sector is increasingly dominating the oil businesses, The

international oil market has produced a competitive environment with strategic

challenges to managers o companies in the soil sectors. In imitation of Global

trend, Nigeria deregulated her petroleum downstream sector; the effect of which

led to this research.

The study revealed the following

I. The transition period from regulation to deregulation was too short, since

it generally takes time for a market to respond to new rules. The federal

government of Nigeria didn’t give advance notice to the market firms to

enable them build up their capacities before the deregulation policy was

implemented, as a result a lot of the marketing firm’s are incapable of

breaking even.

2. The federal government of Nigeria could only regulated petroleum prices

but failed to regulate the delivery cost to their respective destination

thereby resulting in inconsistent pump prices in different states. Whereas

the mark-u[per tonnage ought to be exactly known such that each firm’s

profit be respectively determined by sales turnover.

3. The problem of insufficient supply sources resulting in insufficient

association still persist to the extent that the two trucks or less monthly

allocations to most station could not take care of their overheads.

4. There still exist unnecessary legal impediment and bureaucratic

procedures that inhibit meaningful participation of private firms in the

downstream sector of the petroleum industry.

5. The very few firms that have increased their capacities have no access to

facilities such as jetties and storage tanks which are still monopolized by

the government.

6. Most of the firms in the downstream sector lack personnel with the

exquisite management skills with which to adapt their organizations to

the sharp changes in the new business environment brought about by the

sudden deregulation policy.

7. The deregulation led to sharp upward increase in petroleum products, as a

result, the working capitals of most marketing firms became inadequate

to procure product into their station, thus, leading to regular stock outs.

8. Since their working capitals have been devalued by the sudden upward

increase of petroleum products, firms have been forced to obtain loans to

at least keep their station running. But the insufficient supply of products

have made it almost totally impossible for firms to meet their loans’

obligations and consequently leading to inability to make returns to their

shareholder.

9. The establishment of mega - station by government have made matter

worse for privately owned petrol station especially those located close to

mega - station, how?

(i) Customers prefer patronizing the mega - stations to the privately

owned stations even though their pump rates are the same.

(ii) The allocation that would have been meant for private owned

stations are in preference given to the mega -station as they have

priority of product allocation over the rest.

10. To some extent, the deregulation policy liberalized the condition for new

entrants into the petroleum marketing business, and in consequence, new

firms (marketers) came in to scramble fro the same quantity of products

available there by saturating the marketers’ aspect of the business.

11. It was found that the major marketers are those benefiting from the policy

in the short-term since they were able to increase their capacities coupled

with their vast network of sales outlets nationwide.

5.2 Conclusion

Deregulating the downstream sector of the Nigerian petroleum industry requires

a change in petroleum products pricing and opening up petroleum products

markets to transparent competition is not easy especially as it include forcing

privately owned petroleum products marketing companies to face fierce

competition and business risk.

Deregulation will, undeniably, have an impact on household income directly or

indirectly, by paying higher prices on petroleum products and through transfers

of petroleum prices to other goods and services. But, it cannot be stressed

enough that the stakes are quite high for the country as far as the deregulation

policy is concerned. Nigeria’s image has been substantially boosted due to the

Prudent policies and reform being proposed, and we cannot afford to relapse

now Nigeria benefited from debt cancellation in second quarter of 2006 from

Paris club and a lot of assistance from other financial institutions. As we know,

these financial initiatives are not without condition. In particular, they demand

product economic management, good governance, transparency and

accountability. What Nigeria stands to gain from the array of international

investment attractable to the downstream sector policy is by far greater than the

benefit that we may derive from the petroleum subsidy.

Nevertheless, it is the fear of the researcher that, with the level of corruption

amongst all tiers of government in Nigeri4 and the glaring economic injustices

being suffered by certain regions of the country. Particularly, the oil producing

ones; the trauma caused by petroleum product scarcity is very likely to remain

with Nigerians as an incubus in the years ahead.

6.3 Recommendations

Based on the finding from the study, the following suggestions are hereby made

as recommendations which when applied are believed to eliminate the hurdles

on the Way to successful operation of petroleum marketing firm in the

downstream sector of the Nigeria petroleum industry.

Judging from the context .of prevailing best practices in the global petroleum

industry, a combination of strategy 2 and3 are most likely the best result

oriented option.

The federal governments should established 2 (two) separate and independent

policy formulation and regulation enforcement agencies that would monitor the

activities of downstream sector and regularly make recommendation, to the

government where and when appropriate, both in the short and long term.

The federal government should set-up machinery to regulate both petrol pump

price and delivery cost to make for uniformity of selling rates at different parts

of the country.

The supply sources should be increased such that petroleum marketers should

be able to procure as much products as they are able - there should be no limited

number of products allocation.

All unnecessary legal and bureaucratic impediments should be liberalized to the

barest minimum, including access to jetties and storage facilities.

The federal government should provide soft loans to desiring firms with at least

3- 5 years moratorium to enable them build their capacities.

An equal level - playing ground should be made for effective competition

between the government owned mega station and the privately owned ones. We

stated above that deregulation has costs. To alleviate the effects on 4w poor,

government needs to introduce well-targeted socio-economic relief services as

antidotes to offset some negative impact on the socio-economic life of the

masses, such as:

To mitigate transport cost, urban and inter-city transportation need to be

improved by making available snore public transport at subsidized fares.

The road network needs to be improved to increase accessibility, while

facilitating and reducing the cost of carting foodstuff into the urban areas. Also

well targeted is the decision to absorb the cost of public primary/JSS education,

which directly benefit the poor.

Petroleum product used predominantly by people at the lower end of the social

stratum, such as kerosene, should be subsidized to alleviate the effect of rising

cost of other services/commodities occasioned by the policy.

Policies that lead to lost of opportunities and sacrifices are best sold to the

public badly and well in advance, possibly through referendum, before they arc

implemented so as to minimize public resistance and related avoidable cost

petroleum marketing firms are adviced to regularly retrain personnel to be

abreast with requisite skills with which to strategically manage their

organization in line with the new business environment.

5.4 Area for Further Study

Further research could be carried out in the area of finding alternative strategies

for managing the refineries with a view to improving their capacities and

efficiencies.

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