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Full Project – AN EVALUATION OF DISTRIBUTION STRATEGIES IN MARKETING OF PETROLEUM PRODUCTS

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CHAPTER ONE

INTRODUCTION

Over the years, Nigeria has experienced a boom in her economy especially in the oil industry. Her citizens depended much on imported goods, especially household products. Nigeria is a country is a country that is richly endowed mineral resources as a gift of nature. The inception of the petroleum industry in Nigeria can be traced back to the first decade of this country when a German company started prospecting for oil in the Ararow area of Ondo state, the first concrete indication that Nigeria is endowed with enormous resources of petroleum came in 1956 with the discovery of the Oloibir field, Nigeria’s first commercial oil find. At that time, there were no Nigerian involvement at all the oil will drilling sites, at government level, the only vehicle that could have been employed in the management of the nation’s oil resources was promulgated to regulate the right to search for, win and work mineral oils. It is interesting to note that the mineral oils act of 1914 was meant to regulate the right to search” for oil and not much else, because the 1948 edition of that law, effectively restricted the right to search for and win oil to British subjects as well as to companies which had their principal places of business in British or in its dominions and whose chairmen or majority shareholders and directors were British subject. This portion of the law (which was not repeated till 1958) was partly responsible for keeping out, American and other nationalities from our petroleum industry until after our independence. Thus, this piece of legislation contributed significantly to giving shell Bp a head start and a dominant role in Nigeria’s petroleum industry.

1.1 BACKGROUND OF THE STUDY

Historically, having established that the Oloibiri field was commercially viable and that oil could be produced and exported from that field within two years, government responded with the enactment of the oil pipelines act of 1956, thus establishing a legal framework within, which shell. Bp could install and operate the pipeline network for evaluating crude oil from the Oloibiri field. Two years later, Nigeria’s first shipment of crude oil for export was made. Other crude oil exports followed steadily, as Nigeria’s petroleum industry develop rapidly with time. Meanwhile, with the growing warnings from petroleum that shell Bp was realizing from Nigeria’s crude oil exports, it was necessary to impose a special tax on petroleum that was different from the tax imposed on companies engaged in other activities in Nigeria. As a result of this, on 1st January 1958, the petroleum profit tax act was promulgated.

In addition, government established a petroleum unit within the ministry of Lagos affairs in reaction to the growing importance of the petroleum industry, which is improving rapidly. This unit had primary responsibility of all time it grew to become a full department in that ministry. Later it was transferred to the ministry of mines and power and by 1975; petroleum activities in the country as well as revenues had become so significant the department of petroleum was upgraded to a full-fledged federal ministry of petroleum. In the early sixties, for example, a large number of companies including calf (now chevron) Tenneco, Texaco overseas petroleum company Philips oil company, esso exploration, union oil and Nigeria petroleum scene.

In the year 1960, the year Nigeria gets its independence from British colony; the government negotiated an agreement with shell Bp to establish a refinery in Port Harcourt to carter for Nigeria’s petroleum needs. The Nigeria petroleum refinery company was established with 50% of its share owned by government, which shell Bp owned it balance shell p was appointed the operator and the refinery was commissioned in 1965. In response to the development, a laws known as the hydrocarbon oil refineries act of 1965 was enacted to take care of refining operations in the Nigeria oil industry. As petroleum continued to grow in its importance to the economy, it was to be expected that in the absence of a virile articulate and enterprising private sector, government with all its might would continue to work towards enacting laws and installing structures that would enable the nation benefit more and more form her growing petroleum resources, which is equally improving greatly.

A good example of the result of such efforts was the petroleum act of 1969 more popularly known in the industry as the petroleum decree 51 of 1969, which attempted to encompass a lot of necessary legislation for regulating a much wider span of petroleum operations them has been leveled by any previews legislation. For example the petroleum degree 51 of 1969 touched on issues like the ownership of petroleum licenses and leases, refining and distribution of petroleum product, power and duties of certain officers in government, payments of fees, rent royalty, as well as wide ranging aspects of petroleum exploration, development drilling and production etc.

OPEC INFLUENCE

Nigeria joined OPEC in the year 1971 at a period when the aspiration of most developing nations that had the clout was to take over commanding height of their economics. OPEC was then involved in deep negotiations to wrest a higher share of the rewards of their petroleum resources from the multinational oil companies who were operating in member countries. By a unanimous resolution OPEC members decided that each member state should take a minimum ownership stake in the oil operations in their countries, and even set out plans for gradually increasing the stake until a majority ownership was altered within a time frame of five years. OPEC member states adopted different strategies in implementing that resolution.

The government of Nigeria after considering all the available options ventures for a form of joint venture participation in which:

1. Total ownership and full control of all the petroleum resources in the ground is retained by the state.

2 Government and oil companies would jointly own (in undivided interest) all the assets created for conducting petroleum operations

3 The oil companies were appointed the operations on the behalf of both parties in oil prospecting and mining leases.

4 All funds required for petroleum operations would be contributed in the same ratio of ownership of the ventures.

5 The rewards would be taken in kind (i.e. in crude oil) and shared in the proportion of ownership of the ventures.

To manage the assets created through government’s joint ownership of all existing exploration and production companies the Nigeria national oil corporation degree no 18 of 1971. The degree empowered the corporation to acquire assets and liabilities in existing oil producing companies on behalf of the Nigerian government and authorized it (NNPC) participate likewise other major multinational oil companies in all phases of the petroleum industry.

1.1.1 PROFILE OF THE COMPANY OF CASE STUDY

The NNPC effectively took of in the year 1972, within three years, it was clear to the policy makers in government that the NNPC was not as efficient as it could be partly because officials of NNPC and the federal ministry of petroleum resources, (FMPR) were often engaged in unproductive bickering about who should do what, and also because both the NNPC and the FMPR were badly understaffed and glossy lacking in the right kind of expertise required to make the desirable impact on the nations petroleum industry to save the situation, government decided to merge both organization into the Nigeria national petroleum corporation (NNPC) by decree of 1977.

The new organization operated under a minister who was both minister of petroleum renounces and chairman of the corporation. The minister presided over the petroleum inspectorate, which inherited the purely regulatory functions of the former ministry and over the board of the rest of NNPC, which was responsible for all the commercial functions of the corporation. The petroleum inspectorate exercises a regulatory role over the entire arms of NNPC. On the other hand, the commercial arm of the corporation through the join venture department monitored and interview, as it deemed appropriate in the operators management of the assets in the oil producing ventures.

KEY PARTICIPANT IN THE PETROLEUM INDUSTRY

Taking a through observation of the activities in the petroleum industry over the past thirty years, one can observe the existence of four major players, in Nigeria petroleum industry. The first is government acting of administrative facts, which often carried the face of law.

OIL COMPANIES

The set of players who are directly responsible for managing our petroleum resources are the oil companies who have been appointed operators of the joint ventures. They are responsible for drawing up plans, work programmed and budgets, as well as for getting the work done either directly or through contractors and their sub-contractors. In other words, the operators are responsible for meeting the target and programme agreed upon between themselves and NNPC. The independent marketers, the transporters, dealers could be added to this group.

NNPC

The NNPC itself also serves as the next major player through its joint venture Organization National Petroleum Industry Management Service (NAPIMS). This arm of the corporation is responsible for monitoring and vetting all operators’ programmes, budgets, designs studies, contractors etc. NAPIMS is also responsible for providing government’s share of the funds required for executing the joint venture operations.

The NNPC carries out most of its distribution and marketing activities through its newly emerged subsidiary the pipelines and products marketing company (PPMC) its mission is to ensure adequate and secure supply of petroleum product to the domestic market at low operating cost, provide excellent customers service by effectively and transporting crude oil to the refineries and moving, while product to the existing and future markets through a network of pipelines and depots, costal wad and rail transportation.

The company carries out most of its activities around in different parts of the nation through its area offices depots and pump stations. PPMC performs its activities through four-area office, which are located in Port Harcourt, warrior, mosini and Kaduna. The Port Harcourt area office has four depots under its jurisdiction namely: Port Harcourt depot, Enugu depot, Markudi depot, and Aba depot. The NNPC Aba depot, which is located in Osisioma local government area in Abia state, was commissioned in 1976. Being one of the depots under the Port Harcourt operational area, it receives its petroleum product from Port Harcourt refinery. NNPC major and independent marketers peddlers and the directorate of petroleum resources carry out its marketing operation at the depot. The depot receives petroleum product namely PMS petrol, DPK kerosene, and AGO diesel. These products are brought by the marketers and taken to their various petrol stations or outlets for further production process or purchase by final consumers.

PETROLEUM INSPECTORATE

The petroleum inspectorate, which is now renames the department of petroleum resources (DPR) id the forth agent of management of the nation’s petroleum resources. In the first quarter of every year, every company searching for or producing crude oil in Nigeria mandatory submits to the DPR its work programme for the year, which the company must defend before experts of the DPR. Such programmes are specially scrutinized, interlard for the qualify of the operator’s oil field management and gas utilization programmes. Manpower training and development is a statutory responsibility, which come under the supervisor of the petroleum inspectorate, in paragraph 37 of schedule 1 (section 2) to the petroleum degree 51 of 1969, the law requires interlaid, that within ten years from the grant of an oil mining lease the lease shall ensure that the number of Nigeria employed in the managerial professional and supervisory grades is at least 75% of the staff strength in these cadres. Its major responsibility is to issue licenses and to monitor activities of all oil companies in the petroleum industry to ensure that petroleum operations are undertaken with good oil industry practices and standards.

1.2 STATEMENT OF THE PROBLEM

1. Consumer orientation is not taken into cognizance when applying distribution strategies in the marketing of petroleum products in NNPC Aba depots.

2. Distribution strategies used in the marketing of petroleum production are not efficient.

3 Factors such as vandalization of pipeline overhead cost increase etc. are responsible for the ineffectively and inefficiencies of the distribution strategies.

1.3 OBJECTIVES OF THE STUDY

The objectives of the study are as follows:

1 Investigating and identifying the problems militating against the smooth distribution and marketing petroleum products in NNPC (Aba depot)

2 To make recommendation on how to forestall future occurrence

3 To proffer solutions to those problems.

1.4 RESEARCH QUESTIONS

The research question for the study were:

1 What distribution strategies are used in the marketing of petroleum products in NNPC and how efficient are they?

2 What factors are responsible for the inefficiency and ineffectiveness of the distribution strategies in relation to the marketing of the petroleum products?

3 How and to what extent does consumer orientation influences the distribution and marketing of petroleum products in NNPC?

1.5 RESEARCH HYPOTHESIS

The following hypothesis were formulated and tested in the study:

Ho: consumer orientation does not have a significant and positive influence on the distribution and marketing of petroleum product in NNPC (Aba depots)

Hi: consumer orientation has a significant and positive influence on the distribution and marketing of petroleum product in NNPC (Aba depots)

HYPOTHESIS TWO

Ho: vandalization of petroleum pipelines does not have a significant effect on the distribution and marketing of petroleum product.

Hi: vandalization of petroleum pipeline has a significant effect on the distribution and marketing of petroleum product.

HYPOTHESIS THREE

Ho: increase in overview cost not affect the distribution and marketing of petroleum products in NNPC.

Hi: increase in overview cost affects the distribution and marketing of petroleum products in NNPC.

1.6 SIGNIFICANCE OF THE STUDY

1 To enlighten consumers about the processes involved in the distribution and marketing of petroleum products so as to elicit understanding from them when the need arises.

2 It will be useful to the institution and individuals in the petroleum industry, highlighting some of the problem and the solutions.

3 To add to the body of knowledge in the academic institutions serve as a guide for further research work and to broaden and enlighten the knowledge of the researcher of this work.

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