University of Nigeria Research Publications
EJIM, George Ahamefude Author PG/MBA/91/11418 Consumer Attitudes Towards the Physical Distribution of Petroleum Products in Title Nigeria (A Study of Lagos Metropolis)
Business Administration Faculty
Marketing Department
July, 1994 Date
Signature
CONSUMER ATTITUDES TOWARDS THE PHYSICAL DISTRIBUTION OF PETROLEUM PRODUCTS IN NIGERIA.
GEORGE AHAMEFULE EJIM
DEPARTMENT OF MARKETING UNIVERSITY OF NIGERIA, ENUGU CAMPUS.
JULY, 1994. CONSUMER ATTITUDES TOWARDS THE PHYSICAL DISTRIBUTION OF PETROLEUM PRODUCTS IN NIGERIA. (A STUDY OF LAGOS METROPOLIS)
GEORGE AHAMEFULE EJIM r ?
PROJECT REPORT
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION (M. B. A.) IN MARKETING.
DEPARTMENT OF MARKETING UNIVERSITY OF NIGERIA, ENUGU CAMPUS
JULY, 1994. CERTIFICATION.
Ejim George Ahamefule, a Postgraduate Student in the Department of Marketing with Reg. No. ~G/~B~/91/11418,has satisfactorily completed the requirement of research work for the degree of Masters of Business Administration in Marketing. The work embodied in this project report is original and has not, to the best of my knowledge, been submitted in part or full for any other diploma or degree of this or any other university. b
Supervisor Ag. Read of Dept.
External Examiner. DEDICATION
NGOZI AND UGO iii ABSTRACT. Customer satisfaction in the context of physical distribution means the ability of the marketing Company to move the right quantity of product to the right place at the right time. It is in the light of this marketing philosophy that oil marketing companies were studied to find out how satisfied the consumers of petroleum products are with the present system of distribution in Nigeria. Four categories of respondents were involved in the survey. Questionnaires were designed and administered to the b respondents. The guiding hypotheses of this study were:
1) Consumers of petroleum products are satisfied with the present system of distribution. 2) The persistent shortages of petroleum products are caused by inadequate number of delivery tankers. 3) The persistent shortages of petroleum products are caused by smuggling and diversion to neighbouring countries.
4) The persistent shortages of petroleum products are due to frequent strike actions by tanker divers (industrial unrest) . 5) The persistent shortages of petroleum products are caused by breakdown of facilities at the depot. 6) Uniform pricing of petroleum products in Nigeria enhance equitable distribution of oil.
Hypotheses 1 was tested using chi-square at 5% level of significance. Hypotheses 2 to 5 were tested by multiple iv regression analysis and simple regression analysis. Hypotheses
6 was tested using simple deduction method. The following were the major findings: i) Consumers of petroleum products are not satisfied with the present system of distribution. ii) The oil marketing companies agree that they have not performed well in the distribution of petroleum products in Nigeria. iii) The declining efficiency in the distribution of petrheum products in Nigeria is the joint effect of inadequate number of delivery tankers, smuggling and diversion to neighbouring countries, frequent industrial unrest and break down of facilities at the depot over a period. The occurrence of one of these variables is not significant enough to cause acute shortage of petroleum products. iv) The major policy measure taken by the Government in response to the constraints, weaknesses and problems associated with the distribution of petroleum products in Nigeria are unsatisfactory. It is recommended that oil marketing companies should own and operate at least 30 percent of the total road tanker fleet. Government should allow Nigerian National Petroleum Corporation (NNPC) the autonomy to run as a full fledged enterprised with little or no interference. V
ACKNOWLEDGEMENT The researcher is specially grateful to Dr. Ikechukwu Nwosu, Associate Dean, Faculty of Business Administration, University of Nigeria, Enugu Campus, for his invaluable assistance and continued inspiration in the course of this study. My thanks are due to Engrs. J. T. U. Nwosu, T. E. Ndukwu, V. C. Irofuala and Mr. I. Okolo for their encouragement and support at various stages of this work. Mr. F. 0.If eachor of the Department of Mass Communication, Federal Polytechnic, Oko, Mr. Gerald Ojukw and Mr. U. P. C. Ndukwu who read through the manuscript to check for typographical and grammatical errors. Their help is very much appreciated. My colleagues in the Postgraduate unit of the Department of Marketing, made helpful comments and valuable criticism on the work. I thank them for their contribution. My profound gratitude goes to my wife, Chidi, for supporting the family while I was away on study. Ngozi and Ugo, deserve my gratitude too, for living their first four and two years respectively without the comfort of their daddy. Many thanks to my parents for their Moral support throughout my study. For carefully typing this research work and other assistance, I must thank Miss Anthonia N. Okonkwo and Miss Marian N. Okotcha and the oil industry. Above all, I am grateful to Almighty God who strengthened me all through the duration of the course. Finally, the researcher assumes responsibility for any errors or omissions discovered in this report.
GEORGE A. EJIM vii TABLE OF CONTENTS. PAGES Certification ...... i Dedication ...... ii Abstract ...... iii Acknowledgement ...... v Table of Contents ...... vi List of figures ...... ix List of tables ...... x b CHAPTER ONE: INTRODUCTION 1.0 Introduction ...... 1 1.1 Statement of Problem ...... 5 1.2 Research Objectives ...... 8 1.3 Statement of Hypotheses ...... 8 1.4 Significance of study ...... 9 CHAPTER TWO: LITERATURE REVIEW 2.0 The consumer ...... 12 2.1 Psychological forces that influence consumer ...... 14 2.2 The concept of physical distributian ...... 19 2.3 The Petroleum Industry in Nigeria ...... 34 2.4 Participants in the distribution process ...... 46 CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY 3.0 Research design and methodology ...... 74 3.1 Delimitation of the study ...... 74 PAGES 3.2 Source of data ...... 75 3.3 Sampling ...... 78 3.4 Choice of scale ...... 81 CHAPTER FOUR: ANALYSIS AND INTERPRETATION OF DATA
4.0 Analysis and Interpretation of data ...... 83 4.1 Petroleum products distribution before the first refinery at Alesa-Eleme ...... 83 4.2 The present distribution system ...... 87 4.3 Test of Hypotheses 1 ...... ' 105 4.4 Distribution problems and weaknes ...... 108 4.5 Test of Hypotheses 2 to 5 ...... 115 4.6 Major policy measures to problems of distribution and Evacuation ...... 121 4.7 Spatial distribution of fuel in Nigeria ..... 127 4.8 Test of Hypotheses 6 ...... 129 4.9 Effect of petroleum product shortages on the national economy ...... 134 CHAPTER FIVE: SUMMARY AND CONCLUSION . 5.0 Summary ...... 5.1 Main findings ...... 5.2 Recommendations ...... 5.3 Direction for further work ...... 5.4 Limitation of the field study ...... 5.5 Conclusion ...... B I B L I0G R A P H Y: ...... APPENDICES: ...... ix LIST OF FIGURES.
FIGURE : PAGES Physical distribution system ...... 2 9 NNPC refineries, products pipeline network, depots and pump station ...... 55
The flow of imported oil products before 1965 . . . 88 The physical flow of petroleum products ...... 93 The flow of refined products ...... 94 The distribution channel for petroleum b products ...... 96 Oil Marketing Companies retail outlets ...... 101 A typical petrol filling station in Lagos ...... 104 Recommended channel of distribution of petroleumproducts ...... 153 X LIST OF TABLES.
TABLE : PAGES 1 Consumption of Petroleum Products in Nigeria
1980 . 1987 ...... Consumption of Petroleum Products in Nigeria
1980 . 1987 ...... Summary total lifting of Sectorized petroleum products 1989 ......
Summary total lifting of sectorized petroleum b product1990 ...... Petroleum Products in Nigeria ...... Annual products evacuation statistics, 1988 ..... NNPC Petroleum Pipeline Systems and Depots ...... Petroleum Products retail outlets in Nigeria. 1986 ......
Petroleum Products retail outlets (% share of outlets) ...... Sales volume of Marketing Companies. 1984 ...... 1991 Population Census for Lagos State ...... Distribution of oil products in Nigeria. 1964 .... Changes in the supplying depots. 1965 ...... Percentage of Petroleum Products distribution 1987 ...... 107 1984 Survey of Manufacturing Industries in Nigeria ...... 132 Consumer opinion on uniform pricing ...... 133 Oil Company executive opinion on uniform pricing . 134 Annual growth rate of domestic consumption of petroleum products 1985 - 1990 ...... 136 ~nnual'consumption and supply of petroleum products ...... 137 CHAPTER ONE.
1.0 INTRODUCTION. An attitude may be defined as a tendency to respond favourably or unfavourably toward a person, an institution, a thing or an idea. It is usually the result of some past influence, an effect of what one has experienced.' A study of the buying motives of ultimate consumers helps one to understand why they buy the goods they purchase from chosen sources of supply. But the understanding is incomblete without proper and accurate evaluation of the consumer's attitudes and reactions. The later is of special importance for the successful performance of the marketing process and is helpful in viewing the marketing mechanism which has been developed through the long years to serve the consumer. While largely confined to the ascertainment of the consumer's attitudes, opinions, beliefs, likes and dislikes with reference to specific products (e.g. petroleum products) there is need for general knowledge concerning the consumer1s reactions towards different types of marketing institutions, various services and with respect to other phases of business. Because the number of individual products and marketing establishment is legion and their interrelationship are so complex, and because consumer attitudes may change quickly and drastically, very few generalizations can be made in this area. Thus, it may be said that consumers desire to secure all goods and services with least effort at fair and reasonable prices. They feel that their needs should be met effectively and economically by those who undertake to supply them2. Physical distribution involves planning, implementing and controlling the physical flows of materials and final goods from points of use to meeting customer needs at a profit3. The physical distribution system comprised two major subsystems. The first is a transportation system. The second is a warehousing system. The transportation system comprises two major components: transportation carriers and transportation agencies. The agencies consist of such institutions as freight forwarders, railway express, parcel post, air express and shippers' associations. In constructing a transportation system, transportation carriers and agencies are linked and integrated to form economic unit that are more efficient from the users point of view. As a result, an integrated and co-ordinated transportation system is designed to overcome the barriers separating a company from its customers and consumers. These barriers include time, place, cost and competitive elements. The integration of separate transportation system is resulting in new economies of movement and more adequate servicing of market wants, needs and opportunities. 3 The second subsystem in the physical distribution complex is the warehousing system. It is comprised of two types of activities: storage and handling activities and merchandising activities. These two groups of activities are linked together to achieve an integrated distribution centre4. Storage and handling include layout, warehousing, receiving, consolidating, breaking bulk, packing, order processing, shipping, delivery and receiving. The merchandising services include packaging, grading, financing, displaying, selling and credit. Both the storage and handling and merchandising activities must be co-ordinated, sequenced and linked to form a distribution centre that moves goods effectively rather than merely storing them5. When the transportation system is linked with the warehousing system, we achieve an integrated physical distribution system. This system is able to overcome barriers that separate the company from the market place, thereby rendering services to customers and consumers and achieving better market posture for the firm. The physical distribution system operates within a larger marketing setting. It is one part of the marketing mix. It pertains directly to the distribution mix and must be designed to support in distribution channels. As a result, physical distribution activities and policies can only be properly 4 perceived in their marketing framework. Marketing activities, problems, policies and decisions must be linked to physical distribution factors6. The physical distribution of petroleum products in Nigeria is vital to the extent that their non-availability could cause serious social dissatisfaction to the consumer. It is in recognition of this fact that the federal government established the Nigerian National Petroleum Corporation (NNPC) to oversee the exploration, refining and distribution of these products through some intermediaries to the ultimate consumer. b To enable it distribute these products efficiently, the NNPC has 3001 Km of pipelines and 19 depots. There are 8 major marketers, 700 independent marketers, 7000 services stations and
800 long distance services truck7. Despite these facilities, the intermittent scarcity of petroleum products all over the country is an indication of some inadequacies in our physical distribution system. Such problem
(i) Diversion of petroleum products from its initial destination to an entirely different destination. (ii) Breakdown of facilities such as the delivery system at the loading points. (iii) Non-availability of trucks for haulage of petroleum products to various points of sale.
( iv) Inability of law enforcement agents to relate very well with tanker drivers and their union, have 5 remained a recurring decimal in the distribution of petroleum products. What consumers of petroleum products expect when they visit petrol filling stations or such other retail outlets is to meet the right grade of petroleum product in whatever quantity needed. This desire was met in the distribution of petroleum products in
Nigeria up to 1974 when widespread shortages started. Today, the shortage is more acute, widespread and frequent, despite the fact that Nigeria is an oil rich country8. It is necessary for an organization to seek to unde?stand consumers1 opinions, preferences, habits, criticism, feelings and ideas toward a product or services. A study of consumer attitudes towards the physical distribution of petroleum products in Nigeria, in the light of the current situation is necessary to ensure customer satisfaction. Customer satisfaction in the context of physical distribution means the ability of the marketing company to move the right quantity of products to the right place at the right time. It is in an attempt to find out how satisfied or dissatisfied the consumers are with the present distribution network of petroleum products that this proj ect was embarked upon. 1.1 STATEMENT OF PROBLEM. The issue of petroleum shortage in Nigeria started in
1974 in the northern part of the country. There were
further shortages in May and June of 1975 and December 1992. These shortages were acute and widespread. Today the 6 problem of intermittent petroleum products shortage still persist despite all the facilities at our disposal. Majority of the people hold the view that there exist smuggling and diversion, cross border leakages of scandalous proportion due to low prices of the products at the domestic market. These school of thought further argue that low prices and to some extent, price disparities among the products have encouraged the adulteration of products. Adulteration, in turn, contributes to oil products shortages in the country. # Other critics say that the constant shortage of petroleum products is due to the fact that many of the depots experience various technical problems. Breakdown of facilities such as the delivery system at the loading point could disrupt the distribution process. The fact available at the moment suggest that arrangement for immediate repair of such facilities when they break down is not satisfactory, considering the subsequent effect on the consumers. Another school of thought feel that beside the inadequacies of the depots, another contributing factor to shortage of petroleum products in the country is lack of haulage trucks (delivery tankers). There is gradual reduction on the number of delivery tankers on the roads due to high initial cost and high cost of maintenance. The inability of tanker owners to buy new trucks to replace their ageing trucks is adversely affecting the distribution process. This is 7 attributed to the astronomic rise in the cost of haulage trucks. Some lay claims to the inability of law enforcement agents to relate very well with the tanker drivers and their union. There have been cases of unnecessary harassment of tanker drivers by law enforcement agents (particularly the police) in the course of distributing petroleum products to various destinations. In most cases the union executive make adequate representation to the authorities concerned but not much corrective action is taken. Such b administrative lapses have led to constant industrial actions by tanker drivers to press home their demand for justice. Others opine that the scarcity of petroleum products could be attributed to the fact that the demand growth for petrol has moved from an average of 2 to 3 percent (%) to
18 to 20 percent (%) in the last two years9. For the other component products, it is about 12.4 percent (%) per annum. In the last decade of this century, experts are projecting a growth rate of 3 percent (%) for African nations including
Nigeria. Now the difference between 3 percent (%) and 12.4 percent (%) is quite significant. 12.4 percent (%) growth rate therefore is unparalleled anywhere else. These astronomical increases have continued to create problems in the country. And such problems have enormous financial cost implications. It is therefore part of the 8 aims of this study to examine these defects and other institutional distribution weaknesses and problems.
1.2 RESEARCH OBJECTIVES. Having defined the problem of the study, it is now necessary to present the specific objectives which the work intends to achieve. The study is therefore aimed at:- (i) determining the ideas, feelings and opinions consumers hold about the present distribution system of petroleum products in Nigeria by the oil marketing companies. b (ii) finding out the feelings and opinions of consumers about the current price of petroleum products in relation to its availability. (iii) examining the present distributing system employed by oil marketing companies with a view to determining its level of efficiency. (iv) making recommendations that will enable the oil marketing companies attain excellence in their distribution function.
1.3 HYPOTHESES. In other to carry out this study, the following hypotheses have been formulated. They are:-
1. H,: Consumers of petroleum products are satisfied with the present system of distribution.
H, : Consumers of petroleum products are not satisfied with the present system of distribution. 9 H,: The persistent shortages of petroleum products are caused by inadequate number of delivery tankers.
H, : The persistent shortages of petroleum products are not caused by inadequate number of delivery tankers. The persistent shortages of petroleum products are caused,by smuggling and diversion to neighbouring countries. The persistent shortages of petroleum products are not caused by smuggling and diversion to neighbouring
countries. b The persistent shortages of petroleum products are due to frequent strike actions by tanker drivers. The persistent shortages of petroleum products are not due to frequent strike actions by tanker drivers. The persistent shortages of petroleum products are caused by break down of facilities at the depot. The persistent shortages of petroleum products are not caused by break down of facilities at the depot. Uniform pricing of petroleum products in Nigeria enhance equitable distribution of oil. Uniform pricing of petroleum products in Nigeria does not enhance equitable distribution in oil. SIGNIFICANCE OF STTJDY. The work is expected to provide oil marketing companies with consumers' opinions, criticism, feelings and ideas towards the physical distribution of petroleum products in 10 Nigeria. It will also suggest measures for tackling the problems of unsteady supply of petroleumproducts by getting at the root cause of the identified problems through various sampling and analytical techniques, proffer solutions that can be used by the institutional distribution channels for efficient channel operation. Such solutions will also be useful to the various oil marketing companies in that it will help them to win consumers favourable attitudes. Physical movement and storage tend to predominate the functions of the distribution channel in the petroledm industry where price is standardized and the market comprised limited number of buyers and sellers. As economies develop, a gap develops between the producer and consumer. It is expected that this study will bridge this gap by resolving spatial and temporary discrepancies in supply and demand. It is also hoped that the study will expose the inadequacies of our present distributive system and emphasize the need for a design of a new distributive system that will reflect our present state of development and culture. The efficiency in the distribution of petroleum products and the ultimate satisfaction of consumer sought by this work will definitely enhance the economic development of Nigeria considering the widespread social and economic problems caused in the past by shortages of p'etroleum products. NOTES.
Harold H. Maynard~,Princi~les of Marketing, (Ronald press,
1967, New York) , PP. 63 - 65. Harold H.Maynards, OP Cit. P.65. Philip Kotler, Marketins Manasement; Planning and Control,
(Prentice - Hall, inc., 1984, New Jersey) P.591, 150. Eugene J. Kelly and William Lazer, Managerial Marketing, pers~ectiveand view points, (R.D. Irwin , inc., 1967,
Illinois), PP.529 - 532. b Eugene J. Kelly and William Lazer, OP. Cit. P.530. Eugene J. Kelly and William Lazer, OP. Cit. P.127. Funso Kupolokun et all "why oil subsidy should be removedI1, Business Times, (Daily Times Nigeria Plc, Dec. 1992, Lagos) P.10, 11. Udeme Ekpo, "Fuel scarcity hits Lagos, other cities", Business Times, (Daily Times Nigeria Plc, Dec. 1992 Lagos) P.2. Ndu Ughamadu, "Linking all refineries with pipeline^^^, Business Times, (Daily Times Nigeria Plc, Dec. 1991, Lagos)
P.20, 21. CHAPTER TWO. LITERATURE REVIEW THE CONSUMER: All activities in any business must be focused on the consumer. Any business unable to provide goods and services that fulfil'the needs and satisfy the wants of consumers has lost its prime reason for existence. It will not survive in a competitive environment. Consumers judge business performance and determine business destinies by the b manner in which they, consumers, exercise their purchasing power. Thus, whether a business is rewarded or penalized in the market place is determined to a large extent by how well the needs and wants of its customers are understood and fulf illedl. The term I1ConsumerBehaviour1I has been viewed from many vantage points by various authors. A consensus seems to be a mirage. The study of consumer behaviour explains who the consumer is, what are his preferences; and what influences his actions. These questions and their answers are of vital importance to any business that wishes to achieve the goal of the Marketing Concept. Watson (1975) defined consumer behaviour as, "the way people act in the exchange processu2. This definition has its core as the exchange process. Similarly, James Engel
(1978) defined consumer behaviour as, "those acts of 13 individuals directly involved in obtaining and using economic goods and services, including the decision processes that precede and determine those actsff3.This definition throws light to the subject matter but in its entirety does not give a fuller meaning of the subject. The definition of consumer behaviour as, Ifthedecision process and physical activity individuals engage in when evaluating, acquiring, and using economic goods and service^"^ has not improved the other definitions. However, the definition b given by William (1982) seems to have wider acceptance. He defined consumer behaviour thus: "All purchase related activities; thoughts and influences that occur before, during, and after the purchase itself as performed by buyers and consumers of products and services and those who influence the purchaseft5. The above definition embraces all the points mentioned by the other authors and goes further to include influences on the consumer. The forces that influences the consumer are grouped into two; namely, psychological and environmental forces. The psychological forces consist of learning, personality, attitude, self concept and perception. On the other hand, the environmental forces influencing the consumers comprise social class, family reference group ar,d culture, others are promotional communication, the state of the economy and price relationship. 2.1 PSYCHOLOGICAL FORCES THAT INFLUENCE CONSUMER.
2.1.1. ATTITUDE : ~ttitudeis considered important in the field of marketing. This is because it plays a pivotal role in the major models describing consumer behaviour. It is defined as, "a tendency to respond favourably or B unfavourably toward a person, an institution, a thing or an idea. It is usually the result of some past
influence, an effect of what one has experienced Il6. They are formed through past learning experience with the product or idea or through relations with reference groups such as family, social and works group7. The attitude of consumers towards a product goes a long way to determine the patronage of that product by consumers. Studies on attitudes carried out at Grey Advertising Inc. in US, has this conclusion; More and more psychologists are coming to the conclusion that to result in a sell, an advertisement must bring about a positive change in the attitude of the reader or viewer8. This is to say that, for any advertisement to effect 15 sales, its messages should be such that will make the consumer have favourable disposition toward the product. The experience of I1Honda"Motorcycle riders comes handy. On entering the US Market, the "Hondal1 firm launched a campaign based on the theme "You meet the nicest people on Honda". This Campaign was successful and people now have positive attitude toward Honda motorcycleg. A thorough knowledge of the consumer's attitude b is of importance for improving products, redesigning packages and developing and evaluating promotional programmes. Hence Marketers are often interested in a person's attitude towards the product itself, their overall attitudes with respect to specific brands and their attitudes toward specific features or aspects possessed by several brands1'.
Holloway et a1 (1971) defined attitudes as, "mental sets which direct an individual's response to a stimulus. They are a psychic summation of knowledge, emotions, motivations and intentions. They describe the way people feel about things and the way people are inclined to react to an advertisement of a product or any other stirn~lus~~~~. Unfortunately, accurate information in the realm of attitudes is difficult to obtain. Attitudes are not 16 consciously developed. Frequently people are unaware that they hold a particular point of view or have a certain predisposition toward a subject. Psychologists have experimented with this problem and have developed a number of technique for the measurement of attitudes. ~ttitudeshave both qualitative and quantitative dimensions namely, the direction (favourable and unfavourable) and the intensity (weak or strong). Because attitude exert a strong influence on behaviour, @ attitude research offers a potentially useful device for explaining and predicting consumer behaviour. Furthermore, a knowledge of consumer attitudes may provide a sound basis for improving products, redesigning packages, and developing and evaluating promotional programmes.
1.2 LEARNING : At the general level, learning gives direction to behaviour as regards choosing one course of action over a number of courses of action. This is in contrast to the role of motivation in behaviour as the force or impelling agent. At the behaviourial level, learning is generally defined as a systematic change in behaviour12. In experimental psychology, repeated experience is considered a major source of learning especially in animal behaviour and in simple human behaviour. Each alternative course of action is considered to entail certain consequences which act as feed-back in restructuringthe hierarchy of alternative courses of action. But in complex human behaviour, which includes much of the sign behaviour manifested in language encoding and decoding processes, it is generally recognized that two other sources become equally relevant: generalization and information. Generalization means transferring a learned stimulus to another similar stimulus. Brand generalization is an example. The role of information in learning is primarily related to complex cognitive processes whereby the person establishes favourable attitude toward or preference for a course of action in instances where he lacks experience. He therefore learns by exactly seeking information about the various brands which form his evoked choice set. In many instances, to minimize the cost and effort of seeking information, the buyer may simply imitate the behaviour of his reference group.
2.1.3 PERCEPTION: This is the process of selecting, organizing and interpreting information input in other to produce meaning. A person receives information through the senses: Sight, taste, hearing, smell and touch. 18 Information input are the sensation that we receive through sense organs. When we hear an advertisement, see a friend, smell polluted air or water, or touch a product, we receive information input13. Perception is a three step process: SELECTIVE EXPOSURE: Although we receive numerous pieces of information at once, only a few of them reach awareness. We select some inputs and ignore many others because we d9 not have the ability to be conscious of all inputs at one time. This phenomenon is called selective exposure because we select input that are to be exposed to our awareness. SELECTIVE DISTORTION: This is the changing or twisting of currently received information. This condition can occur when a person receives information that is inconsistent with his or her feeling or belief. SELECTIVE RETENTION: This is a phenomenon in which a person remembers information inputs that support his or her feelings and belief and forgets inputs that do not. After hearing a sales presentation and leaving the store a customer may forget many of the selling points if they contradict prior beliefs. The information inputs that do reach awareness are not received in an organized form. To produce meaning, an individual must organize them. Ordinarily, this organising is done rapidly to obtain meaning and a person organizes information affects the meaning obtained. THE CONCEPT OF PHYSICAL DISTRIBUTION: Physical distribution, sometimes called logistics, refers to the physical flow of the product from , producers to consumers. According to the American National Council of Physical Distribution Management, physical distribution is "a term employed in manufacturing and commerce to describe the broad range of activities concerned with efficient mgvement of finished products from the end of the production line to the consumer and in some cases includes the movement of raw materials from the source of supply to the beginning of the production line. These activities include freight transportation, warehousing, material handling, protective packing, inventory control, plant and warehouse site selection, order processing, market
forecasting, and customer servicett14. It is clear therefore that the objective of physical distribution is to get the right quantity of goods placed at the right point at the right time. Unfortunately, the 20 situation in most countries especially the developing world has shown that this objective is still hard to attain. The inadequacies of marketing systems of developing economies are most glaring in the area of physical distribution, and one frequently hears of distribution llbottlenecksllimpedingthe development of such economies. Among the early views which focused on how to improve the efficiency of physical distribution were the uprinciplesu texts of the 1900's which mostly covered the strategic possibilities inherent in the physical supply function. Arch W. Shaw (1916),15in his contribution, made a clear statement about the conceptual division of marketing into two halves, demand creation and physical supply. He pointed out that the relationship between the activities of demand creation and physical supply illustrated the persistence of the two principles of interdependence and balance. He therefore warned that failure to co- ordinate these two activities together or neglect of one would certainly upset the equilibrium of forces which meant efficient distribution. Paul Cherington,16one of the pioneer contributors to marketing principles made some notable contributions to physical distribution thought. He identified four maladjustments of a mass production economy: (1) quantity produced and consumed;
(2) quantity (grades); (3) time between production and consumption; (4) place of production and consumption. Cherington then identified the four marketing activities intended to rectify the maladjustments: (1) assembling and disbursing; (2) grading and classifying; (3) storage; (4) transportation and moving. The author went further to distinguish between commercial and physical transfer functions as
follows : The commercial function of correctingthe maladjustment between the place of consumption and the place of production should not be confused with the phenomena concerned with the mechanical tasks involved in the physical transfer of goods from place to place ...... The transportation industry lies outside of, although it is wholly indispensable to the mechanism for the commercial distribution of merchandise-". Fred E. Clark wrote I1Principles of Marketingn1' in 1922, a text similar to Cherington's functional approach to marketing. Clark too saw the exchange functions as one part of marketing, and the physical supply functions - consisting of transportation and storage - as the other. He was one of the first to speak of the principle of concentration and dispersion in the movement of goods. His main focus was upon the role of transportation rates as a factor affecting market delineation and competitive success. He declared thus: "Other things being equal, the seller who has the lowest transportation costs on the B materials, equipment and supplies which he uses and on the shipment of his product to market can sell at the lowest price, makes the greatest net profit, and, if his supply is great enough, may even control the market "le . Still on the problem of rising distribution costs,
Ralph Borsodi was disturbed by the fact that in 50 years between 1870 and 1920 the cost of distributing necessities and luxuries had nearly trebled, while production costs had gone down by one-fif th19. It was
Borsodi's contention that (1) Distribution costs in America, both for physical distribution and for marketing, had risen out of proportion to production cost; (2) high freight rates and cross-hauling and unnecessarytransportationwereprincipallyresponsible for the rise in the cost of physical distribution; (3) manufacturers engaged in mass production and mass selling had been the active factors in the development of extravagant marketing. All these, according to him, were responsible for the breaking down of skilful and sceptical buying by both retailers and consumers. In every marketing channel, there are a number of institutions set up to carry out the job of moving the product fromthemanufacturer to the ultimate consumer. Such institutions are referred to as intermediaries or b middlemen and they include brokers, representatives, dealers, wholesalers and retailers. A comprehensive treatment of the wholesale level in the marketing channel has been attributed to Theodore N. Beckman.
He offered a good example of traffic management - a conception of the physical distribution function. Beckman visualized "three more or less distinctive phases of traffic management: receiving, shipping, and local deliveries1120.The traffic manager would specialize, according to Beckman, in tariffs, rates, and regulations applying to common carriers, but would not necessarily directly manage the receiving or shipping departments. Some authors have started to assume more of a managerial orientation in the area of distribution. Commensurate with this, attempts were made to better 24 integrate distribution function in the total complex of the firm's marketing activities. Paul Converse discussed physical distribution with a positive managerial strategy orientation as follows: "The seller who can make the quickest delivery has a decided advantage 'as the buyer can buy in smaller quantities, carry stocks, and thus use less capital with a minimum danger of losing business due to goods being out of Converse dealt with the competitive strategy b implications of the location of manufacturing plants, assembly plants, and warehouses. Emphasizing the importance of customer satisfaction, and the competitive dangers of stockouts, the author discussed the wisdom of reserve stocks and strategically located regional stocks. A number of periodical literature have also contributed a lot to the development of an efficient and reliable system of distribution. But it seems much of the emphases has been placed on customer service. The reason, perhaps, is that the level of service a firm provides its customers directly affects demand. This is true especially in the marketing of non- differentiated products (petroleum products, chemicals, building materials, basic metal products, etc) where effective customer may be a company's only 25 significant advantage over its competitors. William D. Perreault and Frederick A. Russ, in their article entitled llPhysicalDistributionServices in Industrial Purchase decision^,^^^^ suggested that the logistics planner should set a customer service standard, and this could be in a number of dimensions, namely:
(1) the speed of providing a customer with his order;
(2) the reliability of the speed; b
(3) the extent of immediate availability of all items in the order;
(4) the accuracy of filling the order; and
(5) undamaged delivery of the goods. In practice, of course, firms adopt standards in all these, but put emphases on one or another depending on circumstance. In projecting into the future of physical distribution, William J. Stanton,23 foresaw tremendous challenges and opportunities waiting business executives in the years ahead. These pressures, according to him, would be coming from conditions within their companies and also from external environmental forces. He hinted that essentially there would be problem of organization with regard to physical distribution activities. He therefore 26 stressed the need for effective co-ordination process in this area. Besides, urban population congestion, soaring energy costs, and rising concerns for the environment would greatly affect physical distribution system. Management has therefore been advised to develop and operate efficient flow systems so that the right amount of the right products can be moved to the right place at the right time. SYSTEM APPROACH TO PHYSICAL DISTRIBUTION. b The physical distribution system comprised two major subsystem. The first is a transportation system. The second is a Warehousing system. The transportation system in turn comprised two major components: transportation carriers and transportation agencies. These carriers consist of rail, air, truck, pipeline and water. The agencies consist of such institutions as freight forwarders, railway express, parcel post, air express and shippers' associations. In constructingatransportation system, transportation carriers and agencies are linked and integrated to form economic units that are more efficient from the user's point of view. As a result, an integrated and co-ordinated transportation system is developed which leads to the establishment of new types of carriers, services, and methods of movement and handling, such as piggy bags and trailership. The transportation system is designed to overcome the barriers separating a company from its customers and consumers. These barriers include time, place, cost and competitive elements. The integration of separate transportation institutions and activities into transportation system is resulting in new economies of movement and more adequate servicing of market wants, needs and opportunities. b The second subsystem in the physical distribution complex is the Warehousing system. It comprised two types of activities: storage and handling activities, and merchandising activities. These two groups of activities are linkedtogether to achieve an integrated distribution centre. Storage and handling include layout, warehousing, receiving, consolidation, breakingbulk, packing, order processing, shipping, delivery and receiving. The merchandising services include packaging, grading, financing, displaying, selling and credit. Both the storage and handling and merchandising activities must be co-ordinated, sequenced and linked to form a distribution centre that moves goods effectively rather than merely storing them. When the transportation system is linked with the 28 warehousing system, we achieve an integrated physical distribution system. This system is able to overcome barriers that separate the company from the market place thereby rendering services to customers and achieving better market posture for the firm (see diagram below) . The physical distribution system operates within a larger marketing setting. It is one part of the '* marketing mix. It pertains directly to the # distribution mix and must be designed to support and co-ordinate the activities that occur in distribution channels. Moreover, it must be in line with both the goods and service mix and the communication mix. As a result, physical distribution activities and policies can only be properly perceived in their marketing frame work. Marketing activities, problems, policies and decisions must be linked to physical distribution - SPACE
TRANSPORTATION TRANSPORTATION STORAGE CARRIERS ] 715 LINK I
TRANSPORTATION WAREHOUSING SYSTEM SYSTEM
I LINK I
PHYSICAL DISTRIBUTION SYSTEM
TIME rCOMPETITION Fig. I PHYSICAL DISTRIBUTION SYSTEM.
SOURCE: E. J. Kelly & Lazer, Managerial Marketing, Perspective and view points P.524. Physical distribution is a systems concept. It is concerned with the co-ordination and linkage of various institutions and activities related to storing, handling, and moving goods. It is dependent upon the adoption of a systems perspective by distribution managers. 30 Among the concrete benefits of applying systems thinking to distribution are:-
(i) A business is seen as an integrated production system including both the physical production of products and their distribution, to some areas of marketing opportunity in the most prof itable manner consistent with company objectives. The dichotomy between production and distribution is eliminated and the fact that each of these activities find meaning in # the other is stressed. This approach gives distribution forces the increased stature. (ii) A more realistic viewpoint is gained of the role of distribution in the management of an enterprise. Distribution activities are grouped under the direction of top-level executive. Changes in organizational structures have resulted to adapt business enterprise more effectively to changing market needs. (iii) System thinking fosters the co-ordination of related distribution activities to develop a total system of distribution action. It does not splinter distribution management into a number of distinct specialized operations such as storing, handling and transportation. (iv) The application of the systems concept to distribution has resulted in savings in cost, time and spoilage, andhas increaseddistribution effectiveness. The entire distribution process from start to finish is viewed and engineered as a total system and savings are gained in the total cost of physical handling and distributing goods rather than in any one cost centre.
INDUSTRY: In every industry, the task of designing a distribution system starts with the decision l? n the kinds of distribution channels to employ. This again requires knowledge of the different middlemen available and their ability to perform the needed activities. Nonyelu G. NwokoyeZ5 has identified five sets of factors that affect channel selection. These are:- (1) market coverage desired by the producer; (2) the degree of channel control desired by the producer;
(3) product characteristics;
(4) market (buyer) characteristics; and (5) producer's characteristics. Looking at these factors, I1product characteristics" seems to be the most influential in the choice of marketing channel for the oil products. By their very nature, pipelines are suitable for the bulk movement of liquid spirits or gaseous fuels. In other words, pipelines play a dominant role in domestic petroleum movements. The implication of this network system is that the number of middlemen required to distribute petroleum products is less especiallywhere the company refining the oil or its distribution agent services the industrial market directly. For example, in the United States, the extensive lines in the southwest of the country bring oil from the fields to the b refineries. From there, the more flexible railroads, trucks, and ships usually transport the refined products direct to the industrial sitesZ6. Similarly, a large proportion of petroleum products consumed along the coastal area is moved by a combination of pipelines and the ocean-going tankers, the former connecting producing fields with ports on the Gulf of Mexico from which tankers carry the products to the Atlantic ports2' . In the case of oil supply to the consumer market, a lot of middlemen may be needed. The situation in
Japan has shown that about 25 percent (%) of gasoline
sales in the country (around 1970) were made in the two major metropolitan areas - the one around Tokyo and the other around OsakaZ8. a certain company had its two big refineries in these two areas and the bulk of its 33 production travelled no more than 32 kilometres. Thus wholesalers or trading companies were used. The company's gasoline was sold to a national trading company, which in turn sold it to a regional one, which in turn sold it to a local one, which in turn sold it to the retailer. The conclusion therefore is that the presence of intermediaries in the oil industry facilitates the performance of the distribution function. b Three major tasks have been considered very important in the management of channel system for any line of petroleum products. These are selection, motivation and evaluation of the distributors. Roger
M. Pegram (1965)29 developed some of the more important criteria for selecting distributors for oil firms. He said, for anybody to qualify as a distributor to the oil marketing company, the management must consider the person's credit-worthiness and financial standing; his selling capability; reputation in the community; personal qualities; and past sales performance if the aspirant was formerly in the same nature of business. Philip Kotler13'in his contribution to channel- management decisions, reiterated that middlemen, regardless of industry, must be motivated to do their best job. He suggested that the manufacturer should 34 set up a special department within the marketing department to be called distributor relations planning, and charged with the job of identifying the distributors needs and building up the programmed merchandising and other programmers that could help each distributor to operate as optimally as possible. On the task of evaluating channel members, Roger M. Pegram said a distributor who is losing out to the competitors may get special attention of the management. On the other hand, "if the distributor is not aggressive enough and has been steadily losing market share . . . . he may have to be replacedIr3l. In spite of the diversified views about how to design an efficient marketing channel for a liquid product like oil, many authors however agree that the success of such channel lies heavily with the marketing executives. The administration or maintenance of a channel, once it has been formed, is the responsibility of the marketing department; and this function must be carried out on a day-to-day basis. The only way marketers can justify their existence therefore is to ensure smooth operation of the whole set of institutions that make up the channel. THE PETROLEUM INDUSTRY IN NIGERIA: Oil exploration began in Nigeria in 1908 although the documentation of the occurrence of minerals was 35 reported some five years earlier in 1903. The exploration efforts were punctuated by the two world wars but eventually yielded results with the discovery of oil in Oloibiri in 1956 by Shell-BP32. Oil production and export in Nigeria started in 1958 at Oloibiri by Shell at a production rate of 5,100 barrels of crude oil per day. More than eight oil marketing companies are operating in Nigeria at the moment. These include Shell, Chevron, Elf, Pan Ocean, Philip and A~hland~~. # The Federal Government through the Nigerian National Petroleum Corporation (NNPC) has majority participating interest in all these Companies and has also signed different contracts with other oil companies. The Production rate is at the Organization of Petroleum Exporting Countries (OPEC) quota of 1.864 million barrels per day as at 1993. The country at the
moment has four refineries cited at Port-Harcourt, Warri and Kaduna. The picture of the oil industry would not be complete without mention being made of the petroleum marketing companies like Mobil, African Petroleum, Total, Texaco, National, Agip, Unipetrol, as well as a host of independent marketers34.
2.3.1 WHAT IS PETROLEUM? Petroleum is a mixture of hydrocarbon oils obtained below the subsurface. In Nigeria, it generally occurs at depts below 1,500 metres. It is the raw material around which a chain of commercial activities known as the petroleum industry revolves. It is a major source of energy in the world today and has in fact become the bedrock of man's progress and civilization. Petroleum is the raw material for a wide range of chemicals, for the production of pharmaceutical, fertilizer fibres and numerous ,other products essential for human existence. Petroleum jelly for the body, candles for lighting and bitumen for tarring roads are some of the many by-products of petroleum. The bulk of Nigeria's reserves occur between two thousand and three thousand metres (ie. 1.25 to 2 miles) depth. Oil is usually found associated with gas and water in the pore spaces between the grains of sand that make up the oil bearing rock body (reservoir). It is usually found in areas where thick columns of sedimentary rocks (about 2,000 metres minimum thickness of sands, sandstones, limestones, evaporates and shale) of mostly marine origin occur, like in the Niger Delta, Anambra and Chad basins. Most of the exploratory work in Nigeria has however been concentrated in the Niger Delta. 2.3.2 Daily Average Consumption of Petroleum Product in Nigeria. 1980 - 1987 (metric tons)
Year Under Review Daily Average Consumption
-
SOURCE: See Table 1 and 2 An important feature of the Nigerian domestic Consumption of petroleum products is a fluctuating growth over the period under review.
2.3.3 Comparison of Domestic Consumption of Petroleum
Products 1989/1990
The Volumes of Conventional Petroleum Products
Consumed in the country in 1989 compared to that of
1990 are as follows:- LPG PMS DPK AGO HPFO LPFO b TOTAL 5,707,368 10,609,191
SOURCE: See Table 3 and 4
There was a marked increase in the consumption of Dual Purpose Kerosine (DPK) and Automotive gas oil (AGO) but a drop of 6.7 percent (%) was recorded in the consumption of premium motor spirit (PMS). However, on the whole, there was a 100 percent (I) increase in the consumption of petroleum products in 1989 compared to 1990.
T A B L E I (Continue) *==== =
Products
(I Lubricatin~Cils I Greases Petrolem Jeliy, Waxes etc
Bitumen and Asphalt
Others
- -- Base Oil
Daily Averare
Note: OPZC Conversion Factors are used.
Source: Rigerian oil Industry Statistical Bulletin, 1987 CO~?S~IONOF PETROEUK PRODUCTS IN hTIGERL4, - 1980-1 987 COW 'D (~etricTons an& Barrels)
f ~roducts 1984 1985 1986 1987 1I -- Fietric Tons Barrels Netric Tons Ekrrels Metric Tons Barrels Metric Tons Barrels Liquef ie3 Pe troleurn I L;,LLS 1 785,659 56.1 61 88,717 1 ,212,7&1 hiation 2,160 1 18,611 1,462 12,591 ' $48 7,307 1 710 - I i Frotor Spirit (a) 'cexium-Ot!?er I 6'118 b 23,327,319 I Companies- 3,195,867 27,164,230 3,277,695 77,859,662 2,831,037 24,063.2b8 2,7Lh,L55 (b Premium-Indepen- I dent Marketers 751.1 65 6.39!4,752 82b, 181 7,'?05,377 766,319 6,513.558 890,76t; (c: Regular - I - - - - - I - - Five Star 16 136 - - I - - 1 - / 7*406*318- Ii Dual Purpose Kerosine: I 1 (a) Household-Other 1 Companies ' 854,4b6 6,634 '944 830,471 6,448,769 834,908 0,483,228 945,880 7934L9917 I i (b! Household-Indepen- dent &rke ters 449,256 ?,485,563 li76.653 3.701 ,307 693,365 5,384,118 662,211 1 5,142,201 1 {c) Aviation Turbine 410,945 3.191 ,070 422,093 1 3,277,631. 399,917 3 ,I 05,435 h08,535 I Au+dmotive Gzs Oil 3*172*?56 -1 B ' I I (a) Gas Oil-Other Companies 1 ,&&,a32 10,47k,476 1,094,841 7,915~62~ 969,298 7,007,637 795,754 5,752,983 (b) Gas Oil-Indepen- I dent Marketers . 479,631 3 ,467,540 li22,210 3,052,4141 350,6L2 2,535,001 JJ 32 ,668 3,128,017 (c) Diesel Oil 407,341 2,944,912 496,134 I 3,586,8481 1 534,335 1 3,863,028 527,158 3,811 ,141 Fuel Oil I (a) High Pour 248.327 1,716,387 470,356 3,250,998; 507,188 3,505,582 473,057 31269,675 (bS Low Pour 600,049 4,147,414t 1 626,271 h,328,660 704,505 4,869,398 Lubricating Oil 156,692 1,@95.054! 1 1li6,935 7,026,870 144,910 7 ,912,718 Greases 2,316 I 15,334 4,118 1 27,26hi 1 4.31 3 28,556 36,424 2h1 ,156 Petroleum Jelly, Waxes I etc. I 13.888 1 91,950i 15,297 I 101 ,279 1 6,840 1 L5.286 1 6,738 LL,611 , 5 - - i -
c..W rt G (D J TO 3 CL
III* 51 3- P, .+I-' -
w -w 4cn cn - rn cn 0Q 0 ..(D -W Wcn 2 -m 2 Y r. P 3 w 0 0 - P. m I-' \Alcn aL' G m - rt Y Y \ n (II F $ ..4 rt m r* r m N rt r. - 0 P, I-' A a W wE ..0 (D m z.+ 0 - A w UJ -4 cn Co -W 4 0 -F
a aA " 2 3 -
4 IU -0 4 N -N ALL FIGURES IN M/T
PRODUCTS INDUSTRIAL TRANSPORTERS DOMESTIC AGRICULTURAL TOTAL
LPG 0 0 70825.3 0 70825.3
PMS 206607 1422169 1160861 81351 2870988
DPK . 92913.3 27475.5 1134594 22827.1 1277810
AGO 291541 336366 318115 25432.2 971454
HPFO 0 0 0 0 0
LPFO 416687 4033.72 95491.8 78.332
TOTAL YEAR ------1990 ALL FIGURES IN M/T
1 PRODUCTS INDUSTRIAL TRANSPORTERS DOMESTIC AGRICULTURAL TOTAL
LPG 901.565 0 PMS 124219.3 991083.1
DPK . 71757.71 17267.47 1500352 29843.03 1619220
AGO 574053.3 258877.1 570592.8 753200.9 2156724
HPFO 0 0 0 0 0 LPFO 575960.5 102.626 144083.5 551.193 72069 7.8 TOTAL 1346892 1267330.296 73 71 748 823219.927 10809191 ...... - - Source: Pipeline and Product Marketing Company Ltd. (A Subsidiary of NNPC) Sectoral Analysis Scheme 1987 - 1990 Planning and Business Development, MIS Section Victoria Island, Lagos. Production: June 1993. 45
2.3.4 WARKETING OF PETROLEUM PRODUCTS. The marketing of petroleum products in Nigeria started in the early century by Socony Vacuum Oil Company (the predecessor of Mobil) which marketed sunflower Kerosine. This later expanded in the mid seventies to include the seven major marketing companies, Mobil, African Petroleum, Total, Texaco, National, Agip and Unipetrol. They completely controlled the marketing and distribution of rsfined petroleum products. An eight company, Elf marketing has recently joined the group as well as the independent marketers. Enterprising Nigerians are encouraged to participate in petroleum product distribution. With the ensuring expansion of economic activities in the country, after the Nigerian Civil War, the nation witnessed an unprecedented explosion in the demand for petroleum products in the 1970'~~~. As private marketing companies could no longer cope with this increaseddomestic demand forproducts, this resulted in severe shortages of petroleumproducts all over the country. This also constituted a major bottleneck to development in the country. Government was therefore forced at this point to venture into petroleum products distribution and 46 marketing to help solve the ensuring problems and ease the suffering of the consumers. To facilitate the even distribution of petroleumproducts, government decided to construct a network of pipelines and storage depots all over the country for the effective distribution of products. By 1979 a total of 3,001 kilometre of pipelines linking 16 storage depots to the refineries have been constructed all over the country. Four "white products namely, Premium Motor Spirit (petrol), Five Star Motor Spirit, Dual purpose kerosine andb Automotive Gas Oil (diesel) are handled by this transportation and storage system. The marketing companies purchase these products at the NNPC depots and then distribute them to their various filling stations. In addition to these depots and pipeline facilities, various pump stations are located on the pipeline routes to further enhance regular supply of petroleum products. 2.4 PARTICIPANTS IN THE DISTRIBUTION PROCESS. 2.4.1 THE REFINERY. A refinery processes crude oil or fuel oil into usable products. It is a process of fractional separation. The efficiency of the separation is increased by the presence of a catalystic cracker which increases the yield of petrol from any given barrel of
crude oil by 30 to 40 percent (%)36. Refined crude oil products which are referred to as, "whitell include petrol (premium motor spirit - PMS) , household gas (LPG), household kerosine (HHK), aviation oil (aviation turbine kerosine - ATK), dual purpose kerosine (DPK - for both household and aviation), diesel (automotive gas oil - AGO), and the residue, which is fuel oil, which may be low pour (LPFO) or high pour (HPFO). The cracker can then b process a given amount of fuel oil into more petrol. These are the products of processing light crude oil.
Heavy crude yield other products as well - lubrication oil, paraffin waxes (for candles) TABLE 5. PETROLEUM PRODUCTS IN NIGERIA.
1985. A. CONVENTIONAL PRODUCTS. 1. L'iquef ied Petroleum Gas
2. Aviation Spirit 3. Premium Motor Spirit
4. Dual Purriose Kerosine a. Household Kerosene b. Aviation Turbine Kerosene Automotive Gas Oil a. Gas Oil b. Diesel Oil 6. High Pour Fuel Oil
7. Low Pour Fuel Oil NON - CONVENTIONAL PRODUCTS 1. Lubricating Oil (Lub Oil)
2. Greases
3. Petroleum Jelly and Waxes (PJ & W)
4. Bitumen and Asphalt (B & A) 5. Base Oil (Break Fluids)
6. Chemicals. Source: Petroleum Products Statistical Bulletin, 1985 NNPC, LAGOS. ANNUAL. PRQPUCT'S EVAUJATIOEl STATISTICS: (JANUARY - D-, 1988)
TONS ------...... METRIC------SEA 1------r------4 7
WAL 411658
KAWNA 196683 TOTAL 401415 ------REFINERY RAIL ROAD I ------
------28184 28184 ------. ------PORT- I HARCOURT - - WARRI ------KADUNA ------[ ------
Source: The 1988 Annual Report of the Nigerian Petroleum Industry Department of Petroleum Resources - Ministry of Petroleum Resources. and asphalt. The kaduna Refinery was constructed to handle heavy crude which is specially imported because of the additional product yield3'. A refinery requires a storage depot for crude, accessories (like water) and for products. Each depot needs to be connected to other depots, terminals or other refineries in a grid system. Nigeria has four refineries:- The old Port-Harcourt Refinery Commissioned in 1965 has the full design capacity of b processing 60,000 bpd of crude light oil yielding white products and fuel oil. It was gutted by fire in 1989. Rehabilitation started in 1990 and was completed in 1993, awaiting re-commissioning. Warri Refinery and Petrochemical Company was commissioned in 1978. It has a full design capacity of processing 125,000 pbd of crude oil. It yields white products, fuel oil plus polypropylene and carbon black for the petrochemical company attached to it. It is a premature ageing refinery and suffers repeated problems, especially associated with boilers and power plants, as well as the fluid catalytic cracking (FCC) unit. The net performance is well below design capacity because of repeated shut downs of vital parts. Kaduna Refinery and Petrochemical Company was commissioned in 1980. It has a design capacity to
* 52 process 110,000 bpd of crude oil. It has a fuel plant and a lube plant with a petrochemical plant attached to it as well. The lube plant should use up to 50,000 bpd of heavy crude. The refinery yields additionally base oil, waxes and solvents and there are associated activities of filling and packaging. It is a prematurely ageing refinery and suffers repeated breakdowns and shut downs from fire and industrial
actions. It is operating well below capacity. b The new Port Harcourt Refinery was commissioned in 1989. It has a full design capacity of 150,000 bpd. It produces white products and fuel oil. It is working to near full design capacity and has evacuation problem
due to location - small and inefficient Okrika jetty, lack of pipelines connection with Lagos, so needs coastal tanker and off shore reservoir services. Commissioning of the pipeline connections in the grid started in 1991 and nearly finished, and possibly, a new ocean export terminal, will obviate evacuation problem.
2 PETROLEUM PRODUCT DEPOTS: There are petroleum product depots all over the country. The major ones belong to the NNPC. Some of the marketers also have considerable storage capacity. The depots are necessary to act as product reservoirs. 53 As a matter of fact, all their storage capacity should be used up and we need to build more until we obtain
90 - day forward strategic reserve capacity for products. Depots dispersal in the country is essential, not only for supply but, for national
At the moment, there are the following depots: Port Harcourt Refinery, Warri Refinery, Kaduna Refinery, Benin, Enugu, Aba, Makurdi, Ore (Ondo), Ibadan, Ilorin, Jos, Gusau, Kano, Gombe, Maidugurib and Lagos Satellite town. Others are Atlas Cove, Lagos (for receiving imported products and those brought by Coastal tankers, from Port Harcourt especially) and Mosimi Shagamu (for receiving products from Atlas Cove and distributing these as the largest tanker loading bay) . New storage and distribution depots are coming up in Suleja (Abuja), Minna and Yola. There will also be additional tankage in Aba, Benin, Enugu and Makurdi . The Calabar depot was completed in 1992 after being abandoned for 10 years. The depots are connected to the refineries through a nation-wide network of pipeline systems. The pipeline network is in five systems generally referred to as system 2A, 2B, 2C, 2D and 2E. (i) System 2A runs from Warri Via Benin and Ore to Mosimi depot near Shagamu. 54 (ii) System 2B runs from Mosimi to Murtala Muhammed airport, Ikeja to Ilorin Via Ibadan . (iii) System 2C originates from Warri and transports crudeoiltoKadunarefinery.
( iv) System 2D originates from Kaduna refinery depot to Kano and Gusau. Another arm originates from Kaduna refinery to Maiduguri depot Via Jos and Gombe depots. B (iv) System 2E runs from Port Harcourt to Makurdi Via Aba and Enugu Depots. (For details see figure 2). Phase three of the Depot and pipeline system has the following objective characteristics:- (i) More pipelines were built to take in new
places - Suleja for the Federal Capital, Minna, Yola.
(ii) Pipelines were Widened to hasten through -
put - Enugu to Makurdi and Jos to Gombe.
(iii) Critical connection were made - especially Enugu to Auchi, thus connecting the Port Harcourt Refinery with Lagos and obviating the use of Coastal tankers which consume up to 80 million dollars a year in rent charges on the hired coastal tankers. 5-5 \I - 1 -'FT G UBE 2
'-NWC ~efineries,~roducts PipelineA. netwo-rk, Depots And -pumpstations
SOURCE: NNPCtWWs Bulletin, July, 1990. P. 5. 56 ( iv) All refineries have been connected in a grid network and they can readily support each other. These pipelines will not only obviate the widespread and expensive use of coastal tankers, they will abolish long distance bridging between the South and the North. The widened pipes will hasten flow. Bridging will then become short distance e.g. from Gusau to Sokoto to Bimin Kebbi, from Minna to Zuru to Yawuri. The advantages of these are obvious: b protection of the roads, greater security of supply includingminimising diversion as well greatly reduced cost of bridging by the NNPC and accounted for by the Petroleum Equalisation Fund. Failure of one refinery will play less havoc on the nation as it can be quickly aided by others. There will be greater lengths of pipelines to monitor and to maintain. Pipelines, used well and maginatively do pay their way3'. Efficient product distribution can be ensured by processing the crude oil, by having functioning Refineries and by adequate depots and pipeline system.
THE ENUGU DEPOT.
BACKGROUND INFORMATION:- The depot, located at Emene near Enugu in Enugu State, was built in 1978 and was commissioned in April 1979.
-SOURCE: Pipelines Division, NNPC: 18th February, 1982. 59 It is part of the I1System2EI1 pipeline and receives products from Port Harcourt Refinery through a 12 - inch pipeline that also passes through the Aba depot. Facilities for storage, loading of road tankers and onward pumping of petrol, kerosine and automotive gas oil (AGO) to the Makurdi depot are provided3'. FACILITIES AT THE DEPOT:- Seventeen vertical storage tanks are provided in the depot for product and slop handling. The breakdown of the seventeen tanks are six Premiumpotor Spirit tanks with total storage capacity of 60,900 m3, four Dual Purpose Kerosine (DPK) tanks with total storage capacity of 20,OOOm3, three Automotive Gas Oil (AGO) tanks with combined capacity of 29,000 m3 and four slop tanks with total capacity of 1,264 m3 39. As in the practice in the oil industry, Premium Motor Spirit (PMS) and Kerosine (DPK) are stored in floating roof tanks while AGO and Slops are stored in fixed roof tanks. LOADING ARMS:- Eleven loading arms are provided for dispensing products into road tankers. The distribution of loading arms by products is as follows:
PMS - 5 DPK - 3 AGO - 3 The loading equipment can handle road tankers of about 33,000 litres capacity. 60 MAIN LINE PUMPS:- Two electrically driven mainline pumps rated at 63.6 m3/hr. each are installed for onward pumping of products to Makurdi depot. A boosting pump is also installed to provide the required pressure head to the mainline pumps. All the pumps are provided with protective devices to safe guard them against mal-operation. LOADING OPERATION:- The eleven loading arms are distributed on four loading gantries whereby eight road @ tankers can be loaded at the same time. In 1989, the depot loaded 33,699 tanker trucks approximating a daily average of 120 trucks. The volume of products lifted was 529,401 cubic metres broken down as follows:-
PMS - 271,544 M3
DPK - 144,967 M3
AGO - 122,980 M3 PUMPING OPERATION:- Total volume of product pumped to
Makurdi depot in 1989 was 300,546 M3 broken down as follows : -
PMS - 156,451 M3
DPK - 76,228 M3
AGO - 67,867 M3 THE OIL MARKETING COMPANIES:- Petroleum product marketing activities started in
Nigeria as early as 1907 when a trade link was first established in ~SunfloweruKerosine by Socony Vacuum 61 oil Company. Since then, this sector has expanded tremendously with many grades of oil now under the care of numerous marketers. Today, the distribution of petroleum products in Nigeria is handled mainly by seven major marketing companies,
Viz:- .
1. Mobil Oil PLC 2. Texaco PLC 3. Total PLC b 4. African petroleum PLC 5. National oil and chemical marketing company PLC 6. Agip PLC 7. Unipetrol PLC The independent marketer's scheme, whereby enterprising Nigerians are encouraged to participate in petroleum products distribution has also taken off in the country. Elf PLC, whose major concern originally was oil exploration, is another company that is now showing interest in refined product marketing. Meanwhile, a brief historical development of the oil marketing companies under the scope of this study will be treated as follows:- AFRICAN PETROLEUM PLC:- The African Petroleum PLC (formerly the British Petroleum Company Limited) was incorporated in Nigeria 62 in 1964. As an associate company of the world - wide BP group at that time, it marketed BP petroleum products throughout the Federal Republic of Nigeria. In 1978, the company changed from a private company to a public one when 40 percent of the share capital.was sold to Nigerian citizens in compliance with the provisions of the Nigerian Enterprises Promotion Decree of 1977. Then on 31st July, 1979, the Federal Government acquired the 60 percent share b capital formerly held by British Petroleum (BP) for the Nigerian National Petroleum Corporation (NNPC) thus making the company an entirely Nigerian concern. Subsequently, the name of the company was changed to African Petroleum Limited in November 1979. Today, this company has a board of Directors wholly made up of Nigerians. To implement African Petroleum PLC1smarketing policy and to ensure efficient distribution of its products, AP operates six marketing divisions in the country. There are Southern Division based at Apapa, Western Division based at Ibadan, Mid-western Division based at Warri, Eastern Division based at Port Harcourt, Northern Division based at Kano and Central Division based at Kaduna. The company's products reach the market through its retail, industrial, aviation and domestic products' 63 sales outlets which now stand at 969 in number. About 1,000 employees carry out the company's business activities throughout the country. TEXACO PLC:- Texaco started marketing petroleum products in Nigeria since 1913 but under the name Texas Petroleum Company, the parent company in the United States of America. In 1956, Texaco changed its name from Texas Petroleum Company to Texaco Nigeria Limited when if was
incorporated in Nigeria. Today the share - holdings
of the company stand as 60 percent (%) to Texas Petroleum Company, New York and 40 percent to Nigerian citizens and associations. The Board of Directors comprise four Nigerians, three Americans, one Canadian and one British. In the area of products marketing, Texaco has mapped out formidable plans in line with current business tempo in Nigeria. It has seven geographical marketing areas in the country, each divided into a number of districts. The areas include Lagos, Enugu, Port-Harcourt, Ibadan, Kano, Warri and Jos. CFAO and UTC were Texaco's exclusive distributors since its incorporation in 1959 until January 1964 when Texaco commenced marketing on direct basis. As at now, Texaco has about 773 petrol filling stations distributed all 64 over the country. The company1s market share for all petroleum products improved from 9.3% in 1982 to 9.6% at the beginning of 1985 then decreased to 7.0% in 1986. MOBIL OIL PLC: - Mobil Oil Nigerian Limited was incorporated in Nigeria on 31st December, 1951. Its shares were completely owned by Mobil Oil Corporation, New York, U.S.A up to December 1978 when Nigerians started, participating in the subscription. As at now, 40% of the companyis shareholding belongs to Nigerian citizens and organizations while the remaining 60% is left to the Americans. The membership of the company1s Board of Directors has changed considerably since 1982, however, the size still remains the same - 7 members made up of Nigerians and Americans. Mobil1s manpower stood at 544 at year-end 1983 with 5 expatriates. The company currently has about 1,819 marketing outlets spread around the whole country for equitable distribution of its products. THE INDEPENDENT MARKETING SCHEME:- The independent marketers programme was as a result of the petroleum products shortages of the 1970's which was partly attributed to lack of 65 sufficient investment by the major oil marketing companies in petroleum retailing outlets especially in the rural areas. It was suggested that the establishment of indigenous independent marketers would increase the number of outlets particularly in the rural areas and would permit the direct participation of Nigerians in the petroleum products distribution business. In December, 1979, the NNPC advertised for interested parties to apply with all relevant documents for consideration as independentmarketers. New applicants that meet the set requirements of the corporation are still appointed as independent marketers. As at 31st March, 1985, a total of 269 marketers have commenced lifting of products from all the 17 depots in the country. There are about 700 independent oil marketers operating in Nigeria today. However, their origin is relatively recent compared to the seven traditional marketing companies. One feature that is peculiar to these indigenous marketers, as of now, is that they operate only in the sections of the country where they are registered. Fab Petrol Nigeria Limited, started its marketing operations along Apapa - Oshodi Expressway, Lagos in 66 less than ten years ago. The same time horizon applies to the birth of Capital Petrol Nigeria Limited, Ikotun Road, Ikotun-Isoloand Tropical Petrol Nigeria Limited, Egbe Road, Iyama-Ejigbo, Lagos. The three are all private firms each employing less than 100 people including management staff. The three companies operate in different location in Lagos metropolis. The market share of all the independent marketers put together in the distribution of petroleumprodycts in Nigeria was 26.4 percent (%) as at May, 1986 (see table 9) . This figure was more than what almost every major company captured on individual basis during the same year. From another report, the percentage of petroleum products distributed by all the independent marketers were petrol (PMS), 24.30 percent (%) , kerosine (DPK),
41.18 percent (%) and Diesel (AGO), 35.22 percent (%) (see table 11) in 1987. The percentage share of the independent marketers put together is again more than what the individual major marketer had. This goes to show the growing importance of the independent marketers in petroleum product distribution. 8 18I I I I I I I I I & I I I I N Iul CO lcn I I I I I I IF 4 IW W IN I --I-- I I I I I W14 03 1P I I I I I I 4 Iw N 14 I I I I iiiiirwii Ln I4 Wl PINI NI Il Cnl I4 N 1w WI NIull COI l Wl COl 0 I IIIIIII +I I111111 I IIIIIII I I IP m ~cn cn I4 1 I I I I I 4 14 N IW I I I I I I iiiiiwii I IN IIIIIIIlII4llulI I 1l11111 I I I I I I ILn -L I I I I I I I I W N 1W m 14 I 1111111 +I IIIIIII I I I111111 I iiiiiii I 11It4 111 I II IIIIIlWIlII1IIi I I-- I I 1 iiiiirwii I 1111 1-1 1 W IQ HNl ImI l4+bl~ LJ lw C>l&lrnlWl IOIOlUY -4 I N ,? .b1 a31 LII V1' Lnr 03 I I I ; TABLE 9. PETROLEUM PRODUCTSr RETAIL-OUTLET. OWNERS AND PERCENTAGE SHARES OF TOTAL OUTLETS AS AT MAY, 1986.
Outlet % Share COMPANIES AFRICAN 969 PETROLEUM AGIP 917 ELF 58 MOBIL 1,819 NATIONAL 1,456 NNPC 150 I TEXACO I TOTAL ,I UNIPETROL INDEPENDENT 2,903 MARKETERS STATE-OWNED 194 GRAND TOTAL 11,003
SOURCE: Petroleum Inspectorate, Lagos. NOTES. Eugene J. Kelly and William Lazer, Manaserial Marketins, pers~ectiveview ~oints,(R.D. Irwin, inc. 1967, Illinois) P.529. Charles R. Watson, Consumer Behaviour: A Managerial view point. (Austin press, 1975, Austin tex) , P.25. James F.Enge1 eat all Promotional stratesv, (Richard Irwin inc., 1983, Illinois) P.3
David L. London & Co., Consumer Behaviour, (Mcgraw-bill, 1979, New York) P.5. Torrel G. Williams, Consumer Behaviour, (West pub. co, 1982, st. paul), P.5. Harold H. Maynards, Princi~leof Marketins, (Ronald press, 1967, New York) , P.63. WilliamJ. Stanton, Fundamentals of Marketins, (Mcgraw-hill, 1984, Tokyo) , P.115. James F. Engel et all OD. cit. P.387. Philip Kotler, ~arketinsManasement, Analysis, planning and control, (Prentice-hall, inc., 1984, New Jersey) P.150. Gilbert and Churchill Jr., Marketins Research, Methodolosical Foundation. (The Dryden press, 1979, Illinois) , P.213. Robert J. Holloway et all Consumer Behaviour, Contem~orarv Research in Action, (Houghton Mifflin Company, 1971, Boston) , P -140. Robert J. Holloway et all Ow. Cit, P.55
William M. Pride & 0.C. Ferrel, Marketins, Basic Conce~tand Decisions, (H. Mifflin Company, 1985, Boston), P.78. Donald J. Bowersox et all Readinss in Phvsical Distribution Manasement: The losistics of marketins, (The Macmillian Company, 1969, New York) , P . x. Arch. W. Shaw, An Awproach to Business Problems, (Havard University Press, 1916, Cambridge, Mars) Paul T. Cherinton, The Element of Marketins, (The Macmi4lian Press, 1920, New York), P.91. Fred E. Clark, Princiwles of Marketins, (The Macmillian press 1922, New York) . Fred E. Clark, Ow. Cit. Ralph Borsodi, The Distribution Ase, (Appleton and Company, 1929, New York), P.3. Theodore N. Beckman, Wholesalinq, (The Ronald press, 1926, New York), P.491. Paul D. Converse, sellins wolicies. (Prentice-hall,inc., 1927, Englewood clitts, N-J.) P.142. William D. Perreault Jr. and Frederick A. Russ, IfPhysical Distribution Service in industrial purchase Decision",
Journal of Marketins, April 1976, PP.3 - 10. William J. Stanton, Fundamentals of Marketins, Mcgraw Hill book Company, 1978, New York), P.391. Eugene J. Kelly and William Lazer, OD. Cit., PP. 529 -531. 25. Nonyelu G. Nwokoye, Modern Marketins for Niseria, (Macmillian Press Limited, 1981, London), P.148.
26. James L. Heskett, "Logistics - Essential to Strategyn,
Harvard Business Review, November - December 1977, PP.85 - 96.
Robert S . Jeff ries Jr . , I1DistributionManagement : Failures and s~lution~~,Business Horizons, April 1974, PP.55 - 66. Donald J. Bowersox et al., OD Cit., P.3 Roger M. Pegram, Selecting and Evaluating Distributors, (The
Conference board, 1965, New York), PP.67 - 80. Philip Kotler, Marketins Manasement: Analvsis, Plannins and
Control, (Prentice-hall,1980, Englewood Clitts, N - J),
P.439 - 441.
Roger M. Pegram, OD. Cit . , P.109. Crude Oil Marketing Services (COMS), "History of Oil Marketing in Nigeriav, NNPC. (NNPC group, 1990, Lagos). NNPC, llPetroleumExploration and Development in Nigeriau (petroleum training institute press, 1984, Efurun), P.8. M. S . Bello, "Risk Management in the Nigerian Oil Ind~stry~~, NNPC, (NNPC group, 1990, Lagos). Public Affairs Department, "Petroleum Exploration and Development inNigeriau (Petroleum training institute press, 1984, Efurun). Jibril Aminu, "Oil and National Conference (3) "Business Times, (Daily Times Nigeria Plc, March, 1994, Lagos) P.5. 72
37. Jibril Aminu, Itoil and the National Conference (4)" , Business Times, (Daily Times Nigeria Plc, March, 1994, Lagos) P.5. 38. Thelma C. Onyiuke, I1KnowYour Depot: Enugu DepotM,NNPC News
Bulletin, (Nelac & Co. Limited, July 1990, Lagos) P.5.
39. Dept of Petroleum Resources, "The 1988 Annual Report of the Nigerian Petroleum Industryu (Ministry of Petroleum Resources) . b
CHAPTER THREE.
RESEARCH DESIGN AND METHODOLOGY. Customer satisfaction is the central focus of any business organization that practices modern marketing. The' needs and wants of the customer group are determined by the firm, and integrated marketing is embarked upon to deliver the desired satisfaction more diligently than the competitors. It is in the light of this marketing philosoph3 that the oil marketing companies are being studied; to find out whether or not the consumers of petroleum products (petrol, diesel and kerosine) are satisfied with the present system of distribution in Nigeria. Thus the researcher has adopted the following conditions and specifications in the design of this project.
'3.1 DELIMITATION OF THE STUDY (SCOPE) Lagos metropolis has been chosen for this study due to its high consumption rate of petroleum products and its strategic role as the centre piece of commercial activities in Nigeria.
At present there are 8 major oil marketing companies and 700 independent marketers operating in the country. This study will limit itself to four of the major marketers and three of the independent marketers selected randomly. The rationale for studying a group of marketing concerns 75 instead of just one is that considerable differences between the marketing companies or the independent markets exist in the distribution of oil Products. For instance, the number of depots which individual companies use varies considerably and depends essentially upon their share of the market and the regional distribution of their trade. Therefore a single sample may not convey a complete understanding of the theme of this project work. Among the petroleum products distributed in Nigeria by
the eight oil marketing companies are: b (i) Liquified petroleum Gas (Cooking Gas) (ii) Premium motor spirit (Super Petrol) (iii) Dual Purpose Kerosine (Household and Jet Fuel) (iv) Automotive Gas Oil (Diesel) (v) Low Pour fuel oil, and (vi) High pour fuel oil. However, this study will consider only those used in automobile as fuel (Petrol and diesel) and one of those used for domestic purpose (Kerosine). Attention is given to these petroleum products because of the severe social consequences on transportation and household due to their non-availability. 3.2 SOURCE OF DATA: PRIMARY SOURCE: QUESTIONNAIRE:- Field research was conducted by the use of questionnaires which was administered to three 76
categories of respondents, namely - the selected oil marketing companies and the independent marketers; tanker drivers, the Nigerian National Petroleum Corporation (NNPC) and the consumers of petroleum products. PERSONAL INTERVIEW:- The field research was supplemented by direct discussion with the executives of the chosen oil marketing companies, proprietors of the affected independent marketing firms, oil tanker b drivers, and officials of the NNPC at the refineries and depots. 3.2.2 SECONDARY SOURCE:- Other information relevant to the study were extracted from the books of the companies, records of the NNPC, Federal Office of Statistics, Federal Ministry of Petroleum Resources, annual reports and financial Review of the Central Bank of Nigeria; Government Official Gazettes and Reports of Judicial commission on oil; Journals and Newspapers. SAMPLE SIZE CALCULATION:- David Aaker et all 1980, stated that sample size calculation is completely independent of the population! It is observed from a preliminary study that in every 10 consumers the researcher met, 8 of them are heavy consumers of various categories of petroleum products under study while 2 consume very little or none at all. The researcher therefore adopted the formula for sample size thus: N - pq (z/E)2
Where ' N - Sample Size to be computed z - Standard deviation for the desired level of Confidence
P - Probability of success in % b Q - Probability of failure also in % E - Limit of tolerance error It is to be noted that where the values to be substituted to the above formula are not available, the researcher has the option to specify them. Hence in the above formula, the values are not given; we take the following specifications. z - 1.96 ie 95% level of confidence P - 80% ie 0.80 Q - 20% ie 0.20 E - 5% ie 0.05 Substituting the above figures in the equation above gives
N - pq (2/812 = (0.80) (0.20) (1.96/0.05)' N - 0.16 (1.96/0.05)' N - 0.16 (1536.64) 78
N - 245.8624 for the purpose of easy sharing and administration, the sample size is reduced to 240, hence my sample size for the third group of respondent will be 240.
SWPLING : The research questionnaires will have three set of respondents the executives of oil marketing companies - both major and independents, tanker drivers, officials of the NNPC and consumers of P etrol, diesel and kerosine. A combined sample size of 180 executives/tanker drivers fromthe different oil companies were contacted in the following proportion - 25 each taken from the major marketers; 20 each taken from the independent marketers and 20 from tanker drivers. A sample size of 100 questionnaires was administered to NNPC officials in the following proportion - 50 to those who are directly in charge of the loading unit of the depots in Lagos and the remaining 50 to executive of the pipeline and product marketing company of the NNPC. The last group of respondents are the consumers. Here the researcher adopted the stratified sampling method in which Lagos metropolis was divided into six subgroups (by Local Government Areas) called strata. TABLE 11. FEDERAL REPUBLIC OF NIGERIA 1991 POPULATION CENSUS (Provisional Results) State Name: LAGOS
L. G. A. NAME Males Females Total ~gege 343,456 Badagry 60,586
EPe 48,530 Eti-Osa 97,264 Ibej i-Lekki 12,139 Ikeja (1) 340,968 Ikorodu 93,214 Lagos Island 82,121 Lagos Mainland (2) 458,131 Mushin (3) 520,758 Ojo 538,214 Shomolu 404,147 Total
1. Including Alimosho 2. Including Surulere 3. Including Oshodi/Isolo
SOURCE: NATIONAL POPULATION COMMISSION, ENUGU. 80 Lagos metropolis has been divided by local government based on the 1991 population census (provisional result) for Lagos State into the following for the purpose of coverage:
I I L. G. A. NAME POPULATION
-- - Ikeja Lagos Island Lagos Mainland Mushin Shomolu Ojo
240 questionnaires were administered based on the population density of each of the Local Government Area Chosen and the level of economic activity thereof QUESTIONNAIRE DISTRIBUTION PER STRATUM FOR CONSUMERS.
LOCAL GOVT. POPULATION gO OF PLANNED PERCENTAGE OF PLANNED (%) AREA DENS ITY INTERVIEW PER INTERVIEW STRATA IKEJA Lagos Island Lagos Mainland Mushin Shomolu Ojo
CHOICE OF SCALE: To measure the level of satisfaction derived from the present system of distributing petroleum products in Nigeria by both consumers and the executives of the oil marketing companies, a five-point scale was employed. The rating alternatives in the descending order of satisfaction are as follows: Highly efficient, Efficient, Average, Not efficient and Very inefficient. NOTES.
1. David A. Aaker and George S. Day, Marketins Research, private and Public Sector Decision, (John Willy and Sons inc., 1980, London), P.350.
2. Federal ~epublicof Nigeria, "1991 population census (provisional result) for Lagos State1!. (National Population
Commission, Enugu . ) CHAPTER FOUR. ANALYSIS AND INTERPRETATION OF DATA. In this chapter, the various data collected will be presented and analysedusing appropriate statistical tools. The results of such analysis in conjunction with the set of hypotheses earlier formulated will be interpreted in the relevant sections. PETROLEUM PRODUCTS DISTRIBUTION BEFORE THE FIRST REFINERY AT ALESA-ELEME. The distribution of petroleum products in ~9geria has assumed different structural patterns right from the time when the country was having no single refinery up to the present day when local processing of crude oil has taken a significant position in the country's economy. Before the establishment of Nigeria's first refinery at Alesa-Eleme near Port Harcourt, in 1965, the country's needs in refined oil products were met from imports. The ocean tankers usually carried petroleum products from abroad to Nigeria and discharged them either at Apapa jetty in Lagos or the Okrika jetty in Port Harcourt, Rivers State. From these two jetties, the imported products were evacuated and transported to various parts of the country via a number of depots using either road tankers, rail ! wagons, or cargo vessels as the case may be. The exact position of the distribution system within the country at that time followed the scheme presented in Table 12. According to the scheme, in 1964, 77 percent of Nigeria's requirement for petroleum products was distributed from the base depot Apapa (Lagos) and 23 percent from the base depot Port Harcourt. From ~agos 56.4 percent of national demand was transported directly to the locations of consumption;
44.4 percent by a pipeline for refined products. 20.6 percent of the national petroleum demand was b transported from the base depot Apapa by railway to the oil depots in Western and Nothern Nigeria as well as on inland waterways to the depots in Sapele, Onitsha and Lokoja. From the base depot in Port Harcourt 18.1 percent of national petroleum requirement was delivered by road tanker vehicles directly to the locations of consumption and 4.9 percent transported by railway tank cars to the intermediate depots in Enugu, Jos, Bukuru and Maiduguril. With regard to the operations of Texaco, Total, Mobil and AP in the study area, each of these four oil marketing companies had its own individual storage depots along the rail road lines at Lagos. But because of the low utilization of storage capacity conditioned by the low volume of consumption in Nigeria at that time, these companies offeredtheir storage depots for 85 joint use. In any case, the products stored at the depots by the individual companies were moved mainly by road tankers to the final consumers who patronized the company's filling stations located in different parts of Lagos. For example, Mobil (Nigeria) PLC had few of its retail outlets located in Ikeja, Lagos- Island, Lagos mainland, Mushin, Shomolu and Ojo areas of Lagos State. Other companies also operated a number of filling stations situated virtually in the same localities of the state. Similar situation obtained in other states where the location of a company's filling station was no distance from another belonging to a different company. Therefore, there were no major differences in the individual operating methods of distribution by the four marketing companies except the variation in the number of storage depots used. The basic tendencies of the flow of petroleum products were the several movement of these products from either the base depot at Apapa, Lagos or the base ! depot at Port Harcourt to the intermediate depots in the Nigerian interior and finally to the ultimate consumers in the various towns of the states (see figure 3) . However, within few months after the opening of the refinery in Alesa-Eleme, there occurred a basic change in supplying oil depots. Table 13 shows the TABLE 12. DISTRIBUTION OF OIL PRODUCTS IN NIGERIA*, 1964 PROPORTION ON TOTAL AREA OF CONSUMPTION DESTINATION PERCENT (%) Total Imports for Domestic Consumption 1. Import papa Distribution from Apapa to Zone 1 by railway Ibadan, Oshogbo by inland waterways Sapele by road Lagos, Western Region Parts of Mid-westerdand Northern Region by pipeline Ijora Thermal Power station to Zone I1 by inland waterways Onitsha to Zone I11 by railway Jebba , Zunguru , Kaduna, Zaria, Kano, Nguru, Gusau by inland waterways Lokoj a by road up to Kaduna I1 Import Port-Harcourt Distribution from Harcourt to Zone I by road Asaba to Zone I1 by railway Enugu by inland waterway Calabar by road Eastern Region to Zone I11 by railway Bukuru, Jos , Maiduguri by road Makurdi
NOTES : n means less than 0.1% of total consumption. :r t Personal information from oil companies. changes in oil distribution resulting therefrom. All the depots in Northern Nigeria were supplied from the new refinery; Jebba and Lokoja by barges on the Niger, all remaining intermediate depots by rail road tank cars. The East and Western regions were mostly by coastal tanker and Railway. The distribution from the individual oil depots to the end consumer, however, did not experience any immediate change as a result of the processing of crude oil in Nigeria. b
THE PRESENT DISTRIBUTION SYSTEM. It has been established in the preceding section that up to 1965, the procurement of petroleum products from abroad and the organization of the logistics for the internal distribution of such products within the country were entirely in the hands of the oil marketing companies. However, with the commissioning of the country's first refinery in that year and the subsequent opening of the two additional processing facilities in 1978 and 1980, there has been a remarkable change in the system of distribution of petroleum products in the whole economy. Besides, the establishment of the Nigerian National Petroleum Corporation (NNPC) in 1977 has exerted another major force in the direction of petroleum products within the
NG OF 4i3~a- EhT AFE? TX3 OPE ?'RHAXSP@RT Ocean tanker
Lagos kg0s Railway kgcs Iagos 2z il way
MID-E STERN REG iON Coastal Tanker Coastal tanker Sapele Escravo s Coastal tanker Coastal t~nicer
EBSTEMJ REG TOE Port-Ilarcourt Overseas Ocean tanker Ales4Eleme Coastal tanker Onitsha Iagos brge Alese31eme barge Railway Enugu Port-Harcourt Zailmy Ales-Elerne r Calabar Fort-Harsourt Coastal tanker Alese-Eleae Coastal tanker
NOFrTZE3N F2.Z I ON Jebba 'Lagos Railway Alese-Eleme barge Loko ja Lagos hrge A1esa-Elerne barge Makurdi Port-Harcourt Iiailway Alesa-Elerne Railway Zungeru Lagos Railway AlestpElene Rail way BUICUTU/,To s Fort-Harcourt Railway Alesa-L-"' erne Railway Kaduna Iagos ria i 1way AleseEleme Railmy Zaria kgos Railway Alese-Elerne Railmy Kano kgos Railway A 1esa-Eleme R2 il way Gusau Lagos Failway A1es+El erne Railway Npu Lagos Railway Alesa-Elerne Railway A%i.&uguri Port-Earcourt Railway Alesa-Eleme Railway country. Today, there exist a distribution network involving strategically located and sized storage depots for petroleum products interconnected with refineries. The country has 19 NNPC depots located in some states of the Federation, the majority of which are found in the states1 capitals (see figure 2). These government depots are linked by network of pipelines to the four refineries in the country. As at now there is about 3001 km pipeline network ranging b in external diameters from 11.4 cm to 40.6 cm in five segments generally referred to as system 2A, 2B, 2C, 2D, and 2E. System 2A, runs from the NNPC refinery at Warri through Benin City and Ore, to Mosimi between Shagamu and Ikorodu some 50 km north of Lagos. System 2B stretches from Atlas Cove near Tarkwa Bay, in the Lagos harbour area branching to the Murtala Muhammed Airport, Ikeja and linking up at Mosimi then to Ibadan and Ilorin. System 2C traverses the country South to North from Warri across the River Niger to Kaduna where it is joined to system 2D from Gusau via Zaria to Kano. System 2E starts from the NNPC refinery Port Harcourt, and proceeds through Aba and Enugu to terminate at Makurdi. The Calabar depot was completed in 1992 after being abandoned for ten years2. In addition to the facilities mentioned above, 91 there are pump stations at Atlas Cove, Ibadan, aria, Jos, Warri, Ore, Port-Harcourt, Enugu and some other towns, established by the NNPC for the purpose of reinforcing the flow of oil from one intermediate depot to another (see figure 2) . phase three of the Depot and pipeline system has the following objective characteristics: (i) More pipeline were built to take in new places Suleja for the federal capital, Minna, b Yola.
(ii) Pipelineswerewidenedtohastenthrough-put- Enugu to Mukurdi and Jos to Gombe.
(iii) Critical connections were made - especially Enugu to Auchi, thus connecting the Port- Harcourt Refinery with Lagos and obviating the use of coastal tankers which consume up to 80 million dollars a year in rent charges on the hired coastal tankers. (iv) All refineries have been connected in a grid network and they can readily support each other. The objectives of the Federal Government in establishing strategic depots and pipelines network country-wide is to ensure that no section of the country at any time lacks supplies of petroleum 92 products. Therefore, the storage depots have been sized on the estimated 1983 product requirements and
designed to hold 45 - 90 days reserve for the areas they serve. These pipelines will not only obviate the widespread and expensive use of coastal tankers, they will abolish long distance bridging between the South and the North. The widened pipes will hasten flow. Bridging will then become short distances. Failure of one refinery will play less havoc on the nation as it b can be quickly aided by others. 4.2.1 THE PHYSICAL FLOW OF PRODUCT. The use of pipeline for the transportation of petroleum products over long distances is the most efficient and economical way of moving large and steady volumes of liquid. The pipelines, however, were not constructed to completely displace or eliminate road or rail tankers. The tanker vehicles, in most cases, carry the white petroleum products from the depots to the retail outlets. According to the structure presented in figure 4, petroleum products moves from the refinery direct to the retail outlets by road/rail, or from the refinery to one or more intermediate depots by pipelines before the retail outlet. The ultimate consumer then receives the product from the petrol station. FIGURE 4.
Tank farm Refinery Depot ( s ) Outlets Consumer
THE PHYSICAL FLOW OF PETROLEUM PRODUCTS. SOURCE: Personal interview information communicated by NNPC, Lagos. b Based on the logic in figure 4, the physical flow of petroleum products in Lagos is facilitated mainly by Warri refinery with a number of supplying depots attached to it (see figure 5) . The product meant for Lagos State moves from Warri refinery to Benin and Mosimi via Ore pump station by system 2A pipelines. The movement of petroleum products from the tank farm through the refinery to the depots marks just the first phase in the transportation of the products to the ultimate consumers. This primary transaction follows the government distribution facilities and therefore excludes the participation of the oil marketing companies. The marketers are only active in the secondary transportation from the depots to the individual purchasers by the use of tanker
95 vehicles; and this marks the final phase of the distribution process. Thus,, the oil marketing companies operating in Lagos state effect the flow of petroleum products from Mosimi depot to Lagos City and environ. The petroleum products retail outlet (petrol filling stations) found in Lagos State represent the specific destination of these products from the depot.
A channel of distribution is the set of institutions created by the manufacturer or seller for the marketing of his products to the ultimate buyer. Sometimes the route may be direct and simple, but often it is indirect and complex. The complexity may arise because it is easier for the manufacturer to sell his products to the middlemen (wholesalers and/or retailers) than to a million consumers. However, the number of links in the channel chain depends essentially on: (i) the characteristics of the product in question (ii) the market coverage desired by the manufacturer (iii) the financial sources of the manufacturer (iv) the buyers characteristics (v) the degree of channel control desired by the manufacturer . In the case of petroleum product distribution in
Nigeria, there is one - level channel containkng just
one selling intermediary, the retailers (see figure 6). The NNPC is the producer of petroleum products and is linked up with the consumers by the retailers. The retailing institution is made up of the various oil marketing companies operating in the country plus the independent marketers. The reason for adopting this structure is because the movement of petroleump~ducts like any other liquid or gaseous product is dominated by pipelines and the retailers only join the channel to bridge the gap between the storage depots and the individual consumers. Thus the title of product flows directly from the NNPC to all oil marketing companies before getting down to the final consumers.
FIGURE 6. +) Producer
I INDEPENDENT I MAJOR MKTERS
ULTIMATE CONSUMERS-+ I Ii THE DISTRIBUTION CHANNEL FOR PETROLEUM PRODUCTS. SOURCE: Personal interview information communicated by oil marketing companies. 97 4.2.3 TEE ACTIVITIES OF TFIE OIL KARKETING COMPANIES. The marketing channel described in section 4.2.2 is essentially aimed at organizing the work that has to be done to move petrol or diesel from the NNPC to the consumers. The purpose of the work is to overcome the gap that separates the products from those who would use them. Thus the work of the oil marketing companies is designed to create form, time, place and possession utilities. Several functions or tasks are b involved in this work. The objectives of this section, therefore, is to analyse the set of activities undertaken by the chosen oil marketing companies in the distribution of petroleum products in Lagos State. As far as distribution of petroleum products is concerned in Nigeria, the oil marketing companies only play the role of retailers and as such they perform the functions pertaining to oil retailing. The organization of retailing starts with the identification of the customers, their locations, and the formulation of strategies to reach where they are. For the oil marketing companies, the customers are the numerous consumers of petroleum products scattered all over the country. And to effectively serve the national market, each of the oil marketing companies adopts a peculiar geographical division of the total market for selling operation. Total Nigeria PLC, for - -
99 instance, has five operating branches in the country. These are Lagos, Ibadan, Kano, Onitsha and Benin. The Lagos branch takes charge of the marketing activities in the whole of Lagos State and some part of the West. Texaco Nigeria PLC has seven areas, namely Lagos, Jos, Enugu,.Warri, Kano, Ibadan and Port-Harcourt. Each of these areas has two or more district offices. In the case of African Petroleum PLC, the company segments the national market into six divisions including Southern B division, Western division, Eastern division, Mid- Western division, Central division and Northern division. Mobil Nigeria PLC maintains three branches, six areas and twenty-one sales territories throughout the country. Fab Petrol, Tropical Petrol and Capital Petrol operates on district basis within Lagos metropolis. The variation in the pattern of market segmentation adopted by the various oil marketing companies as described above are caused by the differences in the factors used for classifying the national market, ranging from population, distribution cost to administrative reasons. Whatever is the basis of such geographical arrangements and the unequal number of divisions arising therefrom, the branch off ice of each oil marketing company gets its products from the nearest NNPC depot or refinery and makes 100 adequate arrangement to transport the allocation to the petrol filling station of the company (see figure 7). But because the law3 does not allow the marketing companies to own any tanker vehicle, the transportation of fuel is left in the hands of the professional transporters who own a large fleet of road tank trucks. The services of the Nigerian Railway Corporation (NRC) also supplement the road system of haulage. In any case, the tanker servicing the oil company arrives at the depot with the companies representatlve. to programme the vehicle for loading at the right time. The average waiting at the depot before service depends on the queue length which is a function of the consumption rate of the market around the depot. The field study has shown that the average waiting time at the depot presently is 2 days. Also, when the arrival rate and the service rate per road tanker are both random, the customer spends on an average 120 minutes at the filling station. The provision of storage facilities at the filing stations falls within the range of functions performed by the oil marketing companies. The marketing companies maintain separate under-ground storage tanks for petrol, diesel and kerosine at the filing station and their sizes differ according to the population patronizing the retail outlet. 101 The number of retail outlets maintained by a company in each town or state varies according to the market share of that company in that town or state. Total Nigeria PLC operates 324 filling stations all over the country. Similarly, other companies have a number of filling stations in the various states except the independent marketers that maintain one or nil in some cases: The dispersal of retail outlets of most companies in every state favours the state capital. b FIGURE 7.
Refinery
N.N.P.C Depot
I
- TOTAL MOBIL TEXACO A P FA3 TROPI - CAL F/s,s/s F/s,S/S F/s,S/S F/SS/S F/s,S/S F/SS/S
I I I I I I I, I ULTIMATE CONSUMER OF PETROLEUM PRODUCT I ------
K E Y:
F/s = FILLING STATIONS
S/S = SERVICE STATIONS Customers service represents one form of competition among oil marketing companies that operate 102 in a particular town. This is obviously strong in a situation where the petroleum products sold is not in any way different either in form or quality from that handled by any other oil marketer. The NNPC does not differentiate its petroleum products and as such there is no basis for the oil marketing companies to attract customers or patronize a particular retail outlet except by effective customer service. The different dimensions of customer service available to the b consumers of petroleum product in Lagos State include: The speed of providing a customer with the product needed (ie prompt attendance at the filling station) . The reliability and accuracy of the rating machine at the filling station (ie decency in charge per litre). Availability of fuel at most time. Neatness of the retail premises. Parking space at the filling station. I Original state, uncontaminated nature or
purity of fuel. I I Other skeletal services at the filling stationincludingMini-Markets, restaurants, mechanic unit, car wash etc. With regard to speedy and prompt attendance to customers at the filling station, most oil marketing 103 companies in Lagos State especially in the metropolis operate multiple Service Points. As demonstrated in figure 8, a customer on entering a particular filling station may choose to join any of the three queues A, B, or C, where customers are least in number. The modern retail outlet provides not only a place for refuelling but also an alternative venue for servicing motor vehicles. In this regard Texaco Nigeria PLC, like every other oil marketing cqmpany, maintains garage facilities in almost all its retail outlets for the repair needs of customers' motor vehicles at competitive charges. such retail outlets that play dual role may be classified as filling - cum - service stations. Another category of petroleum products retail outlets is filling/service station -cum-Mini-Supermarket.The oil marketing companies, Mobil in particular, provide mini-super markets at filling stations where a limited variety of consumer goods are sold to customers. The last set of outlets mostly typical of big cities in Nigeria operate restaurants in addition to the facilities already mentioned. 104 FIGURE 8. A TYPICAL PETROL FILLING STATION IN LAGOS METROPOLIS
- PETROL PETROL
I PETROL 1
------I PETROL I PETROL
I Service Facilities I SOURCE: Personal observation during interviews with oil marketers. The number of activities discussed so far ranging from the procurement of product s , arrangement for their transportation, provision of storage facilities, customer service to re-order schedule seem to be the key functions performed by the oil marketing companies
in the physical distribution of petroleum products. I I But because of the fragmented control of each of these I t task areas, the problems of co-ordination are severe. I I The oil marketing companies, therefore, have evolved a good communications system to harmonize the logistic activities involved in the movement of petroleum 105 products from the distant NNPC depot to the ultimate consumers. With respect to inventory, the information system requires the oil marketers to monitor the present stock levels at the filling stations so that future commitments for supply to customers can be known.. Then sources of inventory replenishment whether to make use of Mosimi depot or any other depot are determined in advance. Transportation information system makes it mandatory also for the oil marketing companies to keep records on the selectionb of transportation modes and carriers within each mode, and performance reports on all carriers used. Carriers that have not performed well, such as being late on their deliveries or causing excessive damage to products are not retained next time.
1 TEST OF HYPOTHESES I. Customer satisfaction is the central focus of any business firm that practices modern marketing. The needs and wants of the customer group are determined by the firm and integrated marketing is embarked upon to deliver the desired satisfactions more diligently than any of the competitors. Customer satisfactions in the context of physical distribution means the ability of the marketing company to move the right quantity of product to the right place at the right time. If a consumer of petrol visits a filling station 106 and can not get fuel because of non-availability of product or for such other reasons connected with poor management of the retail outlet, then, it is doubtful whether the oil marketing companies have satisfied the urge of the customer. From a marketing point of view, satisfaction is better assured in terms of the buyers' perception of the current pattern of distribution system. But to produce a balanced assessment of the current pattern of distributing petroleum products, this study considered the views of the executivesb of the oil marketing companies.
Table 14 shows that 26 company executives of the oil marketing companies, 3 transporters of petroleum products (ie tanker drivers) and 56 consumers considered the present system of distribution of petroleum products to be "averagel1. The rating "not efficientH was responded to by 39 company executives,
87 consumers and 6 transporters of petroleumproducts.
13 company executives, 60 consumers and 2 transporters described the distribution system as "very inefficient". Only 13 company executive again were of 1 I the opinion that the system of distribution is "highly l I efficientn and none of the consumers or transporters , I of petroleum products accepted the claim. Similarly, I only 6 transporters claimed the system of distribution is "efficientM. 107 TABLE 14. THE LEVEL OF SATISFACTION DERIVED FROM THE PRESENT SYSTEM OF DISTRIBUTING PETROLEUM PRODUCTS IN NIGERIA.
COMPANY TRANSPORTERS CONSUMER TOTAL RATING EXECUTIVE RESPONSE RESPONSE RESPONSE RESPONSES Highly Efficient 13 (3.80) 0 (0.71) 0 (8.49) 13 (13.0) Efficient Average Not efficient Very inefficient
- TOTAL NOTE: The expected frequencies are in brackets.
H, : Consumers of petroleum products are not satisfied with the present system of distribution.
Considering Table 14, the rating "Not Efficientu attracted the largest response from the consumers, the executives of the oil marketing companies and transporters of petroleum products respectively. This indicates that the oil marketing companies themselves accept that they have not performed an excellent job in the task of distributing petroleum products in Nigeria. This assertion is confirmed by test of hypotheses I (see Appendix I), which revealed that the consumers of petrol and diesel are not satisfied with the present system of distribution. 108
DISTRIBUTION PROBLEMS AND WEAKNESSES. Distribution of petroleum products by road is hampered by the fact that particularly in the rural areas of Lagos State, the roads are in a state of disrepair and bridges are too narrow. Because of lack of maintenance of the roads, most tanker owners are not prepared to risk total loss or damage to their tankers, rather they prefer to use small road tankers that are sizeable to narrow bridges. This limitation $posed by the constantly and continually dilapidating roads result in small volume of products being moved and long turn-round time. Distribution by road is also constrained by the fact that there is inadequate supply of petrol tankers, attributed to the astronomic rise in the cost of haulage trucks and high cost of maintenance. The exclusion of foreigners fromthe road haulage business (including petroleum products haulage) by the Indigenization Decree4 also reduced the supply of haulage trucks. Thus, the combination of these factors slow down the rate at which petroleum products could be supplied to consumers. Distribution of petroleum products by railway, also run into difficulties because of short comings in the operations of the Nigerian Railway Corporation. 109 The Corporation has been accused of inefficiency in its operation. For example, the long and undue delays in the turn - round of tanker wagons have been associated with the Corporation. There is also the shortage of petrol tanker wagons which contribute to delays in deliveries of supplies of petroleum products to consumers fed by rail. With delays in the supply of petroleum products to consumers, the problem of short supplies woubd have been minimized if adequate storage capacity existed so that adequate reserves could be built up against the uncertainties associated with the deliveries of petroleumproducts consequent todefectivedistributive channels. Investigations had revealed that storage capacity arrangements for petroleum products were unsatisfactory. Although the oil marketing companies were suppose to build up reserves equivalent to 20 days supply, they rarely held stocks in excess of 7 days supply. During the petrol shortage of 10th
October, 1975, in and around Lagos, it was discovered that 4 oil marketing companies (AP, Mobil, Total and Texaco) had nil stocks of Premium Motor Spirit (PMS) in their Apapa depots. Their failure to have Premium Motor Spirit, which was in greater demand reveals weakness and thus inefficiency in their market 110 forecasting and projection. These marketers have been in the Nigerian oil market for some time now and they all know the steep upward trend in the demand for PremiumMotor Spirit since 1973. Adequate arrangements should therefore have been made to replenish their stock before it got actually dry. Another big problem that is associated with the supply of petroleum products in Nigeria is the shortcoming in the design and functioning pf the strategic depots and refineries owned by the NNPC. Depot and refinery facilities are at present inadequate as pipelines and pumps have been grosslyunder-designed for the volume of products required. The loading arms often break down and are left unattended to for a long time at the expense of product availability to the marketers. Thus, the major factor militating against the smooth and efficient operation of the NNPC depots is inadequate maintenance of equipment. Most of the electronic measuring devices in the depots get damaged by the excessive power fluctuations. It has been observed that the intermediate depots which supply other depots suffer most because of the inadequacies of the National Electric Power Authority (NEPA) - non- availability of spare-parts, and lack of qualified personnel. The most affected intermediate depots are: (i) Enugu which supplies Makurdi (ii) Ibadan linking Ilorin (iii) Jos pumping to Gombe and Maiduguri
( iv) Mosimi which pumps to Lagos satellite and Ibadan If continuous operation is to be assured at these depots and as well reduce the frequency of shut-downs in the refineries, reliable heavy duty generators should be provided for power generation; the Gtores should be well-stocked with relevant spare parts and well trained personnel be deployed to serve at the loading bays of the refineries and depots. The hoarding of petroleum products by some unpatriotic Nigerians in the face of shortages also threatens free circulation of fuel within the country. The idea of hoarding is to create an artificial scarcity or otherwise to accentuate and intensify an imminent or existing scarcity. The real answer to
I hoarding is to remove the incentive to hoard by I I balancing supply and demand. If the supply of petroleum products in Nigeria were more than the demand, the hoarder will be the greatest fool who in such circumstance attempts to hoard these products. Unfortunately, the demand for petroleum products in the country far exceeds the supply and this is why hoarding 112 has become a problem. Evidence from the field work has shown that some unscrupulous petrol dealers at the first sign of an impending scarcity start the evil practice of hoarding. In Lagos, for example, the researcher gathered that some petroleum products were sold in the open market in palm oil drums to make them appear as, and pass for palm oil. During the nationwide shortage of December 1992, there was extensive hoarding of petroleum products which fi disappeared conspicuously from the filling stations, only to reappear in the black market and in the hands of illegal petrol peddlers. The Military Government promulgated Decree Number 20 (Miscellaneous Offence) of 1984 to possibly put an end to the economic evil. This was followed by the establishment of task forces on the distribution of petroleum products headed by the Military. The operation of these task forces leaves much to be desired. It is the view of this study that for a check on hoarding to be effective it has to be sustained and continuous. The smuggling of petroleum products out of Nigeria or otherwise the illegal and unauthorized movement of petroleum products across our boarder to neighbouring countries undoubtedly constitute a substantial drain on Nigeria's slim and insufficient resources of refined products. Officials of NNPC in an interview on "why 113 oil subsidy should be removedH attributed the I1illicitl1 traffic in petroleum products across the boarder to the high price differential of white products between Nigeria and her neighbours5. It will however still be left to conjecture, how many such illegal convoys leave Nigeria's boarder regularly to neighbouring countries. What is certain is that these illegal movements of petroleum products across Nigeria's boarders can not be maintained without acts of disloyalty on t@e part of some government functionaries particularly the Department of Customs and Excise. The oil industry and, indeed the Nigerian National Petroleum Corporation (NNPC) do not need the kind of government interventions they are saddled with at present. Many operations of the NNPC are suffering from cash squeeze and presumably, some of the cash squeeze problems had arisen because of heavy doses of government intervention in the Corporation. Government (s) is (are) known to have directly requested for funds or facilities valued at thousands of naira from the Corporation. An example of the interventionist role of government in the Corporation is the buying of road tankers for transporting petroleum products. The principle behind the purchase of such tankers maybe sound (transporting products I I 114 during emergencies). However, financial and statutory restraints were expected to be considered in the process. From a recent public comment by a senior executive of the NNPC, the Corporationfs board may not have approved the purchase of the tankers. More importantly, another aspect of the interventionist role under discussion, is in staff recruitment. A situation where the wrong staff (skill- I wise) is imposed on the Corporation is found to result b in leakages in the oil industry. No doubt, there are many trade unions or associations in the oil industry. At times, some of these groups have extra ordinary interests (external or domestic) to protect. On many occasions, these union members were known to have contributed to fuel shortage problems in the country. The worst areas in this regard is at the refinery and distribution segments of the oil industry. At times the government out of panic yields to the demands of these groups as was the case recently. With this kind of posture, I these unions, sooner again, would come up with fresh demands knowing that the government would, out of fear, bulge to such. The relationship between the NNPC (as an establishment) and oil marketing companies does not seem to be very cordial. NNPC, due to liquidity problem, is indebted to many of these companies. The debts had arisen partly because of bridging costs. Under the policy here, a Petroleum Equalization Fund was set up by the government aimed at, among others, ensuring uniform pricing of petroleum products in all parts of the country. Under this also, transportation costs (bridging costs) would be absorbed by the I government. Unfortunately, these products marketing companies are owed millions of naira6. b With all these factors jointly constituting the prevailing situation in the country today, the desire for an efficient system of distribution of petroleum products in Nigeria has become pertinent. To remedy the situation therefore, the Federal Military Government should develop a mix of policies to cope with the problems of the country's infrastructure; inadequacies of the law enforcement agencies, the attitudes of the public against economic sabotage, the unsatisfactory state of the service facilities and equipment at the depots and refineries. TEST OF HYPOTHESES 2 - 5. To actually determine the variables that influence the volume of oil distributed by the oil marketing companies in Lagos State, the researcher decided to test for one of the variables with the highest response 116 in the questionnaire using simple linear Regression Analysis. The Estimation of the regression equation
is shown in Appendix 111.
H,: The persistent shortages of petroleum products are caused by breakdown of facilities at the depots Analysis of Variance for Resression.
Continuing the analysis of the data in Appendix 1I U, we first calculate the sum of squares due to
regression b
ie bZ (x - x)~= (Sxy/Sx~)~SXX = Sxy2/Sxx
- (- 950.4)'/509.2 - 1773.9 approximately 1774 This sum of squares about regression is obtained by subtracting this sum from the total sum of squares of y about the mean, which was calculated as 71,904.8.
The Analysis of Variance Table may then be constructed.
Mean Source of Variation Sum of Squares Degrees of freedom Square
Due to regression 1774 1 1774
About regression 70,130.8 3 23,377
TOTAL 71,904.8 4
The percentage fit is 100x 1774/71, 904.8 = 2.5%. 117 To assess the significance of the regression, we calculate the ratio of the mean square due to and about regression. This gives 1774/23,377 = 0.0759.
For 1 and 3 degrees of freedom the P = 0.05 and
0.01, the value of F,.,, = ,,,,and F,.,, = 34.1. Thus the relationship is not statistically significant. To justify our claim, we shall analyse the data further using standard error of the regression coefficient. Standard Error of the Reqression Coefficient. , We have already shown from available data that the estimated variance about the regression is 23,377 based on 3 degrees of freedom, and that the sum of squares of the x's about their mean is 509.2 Hence the variance of the regression coefficient is
23,377/509.2 = 45.9 and its standard error is 45.9 = 6.77.
The t factor for P = 0.05 and 3 degrees of freedom is 2.35 and therefore the 95% confidence limits for the regression coefficient are - 1.866 + 2.35 x 6.77 i - - 1.866 + 15.91 = 14.04 and 17.77 These limits show the precision with which the regression coefficient is estimated. Since they include Zero, the regression relationship is not significant. 118 Alternatively we may draw the same conclusion by computing the ratio IbI/S.E (b) = 1.866/6.77 = 0.275 which does not exceed 5.84, the critical level of t for
P = 0.005 and 3 degrees of freedom. Thus it is established that the alternative hypotheses is significant. That is, the breakdown of I facilities at the depots alone is not significant I enough to cause the type of perennial shortages of petroleum products in the country. In the lig-ht of this finding, the researcher extended same conclusion to other variables tested on their individual merits. He concludedthat individually, the mentioned variables are not capable of causing acute shortages of petroleum products . To actually determine the joint influence of the variables on the volume of oil distributed by the oil marketing companies and the relationship between the variables, a least square multiple regression analysis was used. Regression equations were also used to capture the coefficients of some of the variables. The linear function was fitted to the data. The adequacy of the fitted function was judged by such statistical criteria as the size of the coefficient of multiple determination R2, the correct signs of the parameters and the significance of both T and F statistics. The 119 linear functions which gave better fit are presented below. The volume of oil distributed function could be formalized as: where I - I - Volume of oil distributed by the oil 1 companies in Lagos State.
= Number of tankers used by the com~anies - Number of incidence of smuggling and hoarding observed - Number of industrial unrest embarked upon - Number of break down of facilities at the depots.
Qd 363 - 85x1 + 18x2 - 9x3 + lox4 R2 F (46.5) (5.30) (2.57) (6.76) (3.75) 0.823 19.2
( ) Standard Error. The regression result has shown that the variables have high coefficient of determination of 0.823 and that all the variable are significant in the determination of the quantity of oil distribution by the oil marketing company in Lagos State. The R2 obtained suggests that the equation was able to explain 82.3 percent of the total variation in the quantity of 120 oil distributed. The F - ratio is also high indicating that there is joint effect of the variables in determining what amount of oil is supplied. In view of this result, we accept the null hypotheses H, for hypotheses 2 - 5 jointly:- The.persistent shortages of petroleumproducts are caused by inadequate number of delivery tankers. i I The persistent shortages of petroleum products are I caused by smuggling and diversion to neighbouring b countries. The persistent shortages of petroleumproducts are caused due to frequent strike actions by tanker drivers. The persistent shortages of petroleumproducts are caused by breakdown of facilities at the depots. The variables considered jointly have the highest t-value and greatest effect on the quantity of oil distributed in Lagos metropoiis. The relationship between these variables and the quantity of oil distributed is inverse. The higher the joint occurrence of these variables, over a period, the lesser the quantity of oil supplied. Thus, the declining efficiency in the distribution of petroleum products in Nigeria is as a result of inadequate number of delivery tankers, smuggling and diversion to neighbouring countries, frequent 121 industrial unrest and break down of facilities at the depots. MAJOR POLICY MEASURES TO PROBLEMS OF DISTRIBUTION AND EVACUATION. Before the civil war in Nigeria, the now familiar sight of long queues at petrol filling stations was I I unknown. Motorists just drove to any petrol filling I station and purchased petrol of whatever type and grade in whatever quantity they required. Then, some filling stations adopted various devices to attract and retain their customers. Some checked and inflated the customer's tyre while his tank was being filled, others cleaned windscreen, while yet some other gave their customers some gift if they purchased over
=N=2.00 worth of petrol. After the war this still continued and no one bothered to know the intricacies involved in the supply of petroleum products. These products were there for the mere asking. Suddenly in
1974 the entire picture changed, then the phenomenon I of sporadic shortages of petroleum products in urban and rural areas became noticeable, and gradually, became wide-spread throughout the country. The question then was our infrastructure or facilities in the form of refineries, fuel jetties, ports, storage and distribution facilities. Were they good enough to 122 respond to a sudden and unanticipated increase in demand? If the answer to this question is uNow,then a further question will arise - were those who were in a position to influence the policies and direction of the nation' s affairs alerted to the urgent and pressing need to improve upon and/or increase the existing facilities? If they were so alerted, what steps did they take? Were their priorities right, or did they just attempt to cure the symptoms of the disease while leaving the root cause of the disease, unattacked?b All these questions constitute the basis for evaluating the mix of policies formulated by the Federal Military Government of Nigeria to cope with the problems of supply and distribution of petroleum products in the country. The first of such measures was the granting of subsidy to the oil marketing companies. It would be recalled that up to 1965 when the first refinery was established in Port-Harcourt,Nigeria's total needs for petroleum products were met through importation. Therefore, in order to provide greater incentives to the oil marketing companies to import more petroleum products into the country, the government decided to subsidise the oil marketing companies. With the introduction of uniform prices of petroleum products throughout the country in 1973, and with the domestic 123 price level fixed by the government, which was low in relation to import costs in the light of high oil prices, it was necessary to strengthen incentives to import. In this connection, however, it has been observed that delays in the granting of the import price subsidy, contributed to some extent to the short- falls in the supplies of petroleum products made available by the marketing companies. Distribution of petroleum products by sea 4ad its own problems. Petroleum products evacuation from the refinery by sea, was done at Okrika jetty near the refinery in Port-Harcourt. In February 1974, the Okrika jetty was severely damaged. Though it was brought back to use rather quickly, the damage to the jetty could not be completely repaired. This led to a reduction in the speed at which petroleum products could be evacuated to coastal ports in Delta and Cross River States and to Apapa in Lagos, thereby contributing to shortfalls in the supply of petroleum products to those areas. Imports of petroleum products into Nigeria arrive at the port at Apapa. The Apapa port suffers from two major disabilities as far as the discharge of petroleum products is concerned. The approaches to the Apapa jetty are not deep enough to provide access for a fully laden tanker (carrying about 124 25,000 metric tons of products). The berths are also not deep enough. These two short comings makes it impossible for fully laden tankers to enter the jetty and discharge their products. The tankers have to stop at other deeper ports before coming to Apapa. These leads to delays in the discharge of petroleum products at Apapa jetty. The policy response to these problems was that the berthing facilities for oil tankers at Apapa were extended by conversion of the bulk oil plant b of Lever Brothers at Apapa into an additional jetty for oil tankers. With respect to deeper water approaches to Apapa oil berthing facilities, the Atlas Cove project has been completed. The Okrika jetty though quickly repaired when it was damaged, has not been fully repaired. So, the government decided to construct a second jetty at Okrika. Although the government huge investment in the port facilities might be reasonable at the time when almost all Nigeria's needs in petroleum products were met from imports, the current pattern of distribution of petroleum product does not justify such capital outlay. What the government did was a waste of resources because the oil berthing facilities at the ports are not fully utilized as the bulk of oil refined products now come from our local refineries and the sea ports are no longer important. 125 Inadequate storage capacity has been identified as one of the problems causing short-supply in petroleum products. Therefore, in order to smoothen the supply of oil, the law requested the oil marketing companies to build up reserves equivalent to 20 days I t supply.. However, investigation showed that during the I petrol shortage of 1992, in Lagos and the suburbs, four oil marketing companies had nil stocks of Premium Motor I Spirit (PMS) in their Apapa depots. These defaulting b companies accepted public blame for their inefficient market forecasting and/or negligence. There is not doubt that the rail system of transportation falls within the realm of the current pattern of petroleum products distribution in Nigeria. To prevent a noticeable shortage in any part of the country it is imperative that this mode of transportation is efficiently operated and fully utilized. However, the performance of the Nigerian Railway Corporation had left much to be desired; it has been casual and abnormal with long and undue delays in the turn-around of tanker wagons. The Federal Military Government had to step in and issue directives to the Nigerian Railway Corporation to give top priority to the movements of petroleum products. On hoarding of petrol, the Government has intervened by sending combined contingents of army and 126 police to raid suspected hoarders. However, the promulgation of Decree Number 20 of 1984 which awards death penalty for hoarding and other miscellaneous offence seems too harsh in the eyes of the public.
This being the case, there are still reported cases of I hoarding in the country and the struggle to stamp-out I the evil appears to be an illusion until the Government is able to balance the demand for petroleum products with supply. The smuggling of petroleum products acrossb our boarders has been on the increase despite the dismissal of officers found to have colluded with the smugglers and by intensification of boarder patrols. The recent decision by the Federal Military Government to reorganize the Department of Custom and Excise is aimed at finding a lasting solution to the incidence of smuggling. Government action in removing Road Haulage from
Schedule 1 to Schedule 2 of the Nigerian Enterprises
Promotion Decree 1972 must have been aimed at making it possible for aliens to participate in the haulage of petroleum products in other to avoid a disruption in the distribution system. This new arrangement was a policy response to shortage in petrol tanker fleet which had the effect of limiting the transportation and distribution of petroleum products by road. 127 Unfortunately enough, most of the oil marketing company executives that were interviewed during the field work did not show any enthusiasm for engaging in the road haulage of petroleum. I SPATIAL DISTRIBUTION OF FUEL IN NIGERIA. I A reliable statement concerning the direction of I I I movement of refined products within Nigeria can be made I I only if the actual location of oil consumption is known. Nigeria marketing companies provided the basis for ascertaining locational consumption. They have segmented the national market into districts, area, divisions, branches and sales of the companies are compiled according to the individual geographical classification of selling operations which do not always coincide with the state boundaries. For example Total Nigeria PLC divided the national market into 5 operating branches, namely - Lagos, Ibadan, Kano, Onitsha and Benin. This approach is different from the method of segmentation adopted by Texaco Nigeria PLC. Texaco rather prefers to distribute its products on the basis of areas (not regions, divisions or branches) and therefore has Jos, Enugu, Lagos, Warri, Kano, Ibadan and Port Harcourt (7 areas) for its selling operation. In order to avoid overlapping of sales enumeration by the individual companies, Nigeria may be divided into 128
5 main marketing zones, namely - Lagos, West Mid-west, East and the North. Selling Zone A (that is Lagos) embraces the Nigerian area South West of the River
I Niger. The oil marketing companies (Mobil, Total, AP l and Texaco) disposed of 49.5 percent (%) of the ( country1s total trade on petroleum product in 1984 (see table 10) . This percentage represents about 5,484 million litres of petroleum products consumed in that year. b Oil consumption within these five selling zones is by no means equally distributed, but is concentrated in a few centres. The varying through puts of individual retail outlets interfere somewhat with the positive correlation between the number of retail outlets and oil sales. Unquestionably, retail outlets in cities have higher through puts than those in rural areas. Table 8 shows the varying density of retail outlet locations in Nigeria. Each state capital dominates in the consumption of all petroleum products because of their obvious advantage as seat of Governments. There is consequently, a concentration of various industrial activities that make use of petroleum products. These are also the densely populated areas of Nigeria. On the other hand, the boarder areas of the country and a wide strip on both 129 sides of the River Niger between Lokoja and the border of Dahomey and of the Benue have only a small density of retail outlets. The reasons are to be found in the extraordinary sparsely populated "Middle belt", and the slight development of roads on the coastal area because of the. domination of thick forest.
TEST OF HYPOTHESES 6. The uniform pricing policy7 for all grades of conventional petroleum products was introduced in Nigeria in 1973. Our concern however is to fi'nd out whether or not this policy has contributed to the equitable distribution of petroleum products in the country. Before 1973, the Northern part of Nigeria has suffered severe neglect in the movement of petroleum products due to high cost of transportation. However, in the period after 1973, there was a remarkable improvement in the movement of oil products South to the North. For example, in 1974, the four oil marketing companies (Total, Mobil , AP, and Texaco) disposed of 26.0 percent of the country's total trade on petroleum products in the Northern part of Nigeria. The figure kept on increasing from 29.6 in 1975 to 36.8 percent in 1980. The conclusion about this positive trend in the supply of oil to the North or the reduction in the disparity between the volume of petrol 13 0 consumed in the Southern and Northern parts of Nigeria is essentially the impact of the uniform pricing policy. Admittedly, there are other factors that influence the consumption of petroleum products in a particular part of the country like population size and number of industrial establishments,it can be argued that the variations in these factors are by no means limited to the North alone hence as population grows in the South, the North also progresses. Even the number of industries in the whole North, (see able 15) . Therefore, there could have been no other stronger factor(s) responsible for the improved supply of oil to the North since 1973 apart from the uniform pricing policy on petroleum products. Table 16 shows that 161 out of 201 consumers of petroleum products interviewed, that is 80 percent (%) , shared the view that the Federal Government policy on pricing was beneficial to them in terms of availability of or accessibility to oil products. The remaining 20 percent of the consumers expressed doubt if the policy was not limiting the supply of petroleum products to high density areas at the expense of national coverage. The researcher, also sought the reaction of the oil marketing company's executives to the uniform pricing policy. Table 17 shows that 72 out of 91 respondents, that is 79.0 percent (%) supported the 9 131
policy; 1.2 percent (%) remained indifferent while the remaining 19.8 percent % wanted the Federal Government to repeal the order on the ground that the
price discrimination was allowed in other sectors of I TABLE 15. 1984 SURVEY OF MANUFACTURING INDUSTRIES IN NIGERIA. I.S. !JO OF ESTAB- NO OF EST- PERCENTAGE I.C. INDUSTRY LISHMENTS IN ABLISHMENT SHARE OF THE FEDERA- IN LAGOS LAGOS I'ION STATE STATE Meat preparation Dairy produce Food products N.E.C Animal Feeds Soft Drinks Spinning, Weaving e.t.c Made-up Textiles excluding Apparel Knitting Mills Carpets and Rugs Cordage, Rope and Twine Leather products Containers and Box- es of Paper Board Basic industrial chemical excluding Fertilizers Fertilizers and Pesticides Drugs and Medicines Soap Detergent, cosmetics Toilet Goods Chemical products N. E. C. Glass and Glass products Cutlery, Hand tools Hardware Machinery and Equipment N.E.C. Electrical Indust- rial Machinery Radio, Television e.t.c TABLE 15. (CONTS.) I.S. NO OF ESTAB- NO OF EST- PERCENTAGE I.C. INDUSTRY LISHMENTS IN ABLISHMENT SHARE OF THE FEDERA- IN LAGOS LAGOS TION STATE STATE Electrical Appara- tus and supplies NEC Motor Vehicle Assembly, Bodies and parts Motor-Cycles and Bicycles
SOURCE: Federal office of statistics, Lagos.
CONSUMER OPINION ON UNIFORM PRICING. CONSUMER OPINION NUMBER OF PERCENTAGE OF CONSUMERS TOTAL Uniform pricing should not be stopped 161 80.0 Uniform pricing should be stopped 40 20.0 TOTAL 201 100.0 TABLE 17. OIL COMPANY EXECUTIVE OPINION ON UNIFORM PRICING.
OPINION OF COMPANY EXECUTIVES NUMBER OF PERCENTAGE OF EXECUTIVES TOTAL Uniform pricing should not be stopped 72 Uniform pricing should be stopped Indifferent Response
TOTAL 91
Based on the analysis of spatial distribution of petroleum products between the Southern and Northern parts of Nigeria, and considering the various comments made by the consumers and marketers of petroleum products, we accept the hypotheses that: Uniform pricing of petroleum products in Nigeria enhances equitable distribution of oil. EFFECT OF PETROLEUM PRODUCT SHORTAGES ON THE NATIONAL ECONOMY.
While it was demonstrated in section 4.4 that bottlenecks in the distribution channels had I contributed to shortfalls in the supply of petroleum I I products to consumers, the fundamental issue in the problem of petroleum product shortage is the fact that demand increased so rapidly as to outstrip the regular 135 sources of domestic supply, which had previously been geared to a much lower level of consumption. A notable feature of the past trend in the consumption of petroleum products in Nigeria confirms this assertion. For example, the total consumption of petroleum products increased by 72.0 percent (%) in just 5 years I I (1985 - 1990) see table 18. This large increase in consumption rate over the year is evident from the country's total demand for petroleum product3 which jumped from 6.2 million metric tons in 1985 to 10.8 million metric tons in 1990. On the other hand, the rate of increase in the supply of petroleum products from our local refineries fell short of the rate of increase in consumption (see table 19). This has led to substantial increase in imports to satisfy the short fall in domestic production. Therefore, the consequences of petroleum products shortages in Nigeria range from disruption in transportation, intermittent shut-down in industries, abandonment of gas cookers, limitation in the f utilization of kerosine for illumination at homes to t increase in foreign bills on imported oil products. I With regard to transportation, most vehicles were abandoned during the acute shortages of 1992 and 1993 which almost paralysed the whole nation. The industrial establishments, no doubt, contribute significantly to the economic growth of Nigeria. For
instance, the value of the manufacturing sector to the I national economy rose from 80.6 million in 1960 to =N=683.9 million in 1975'. This interesting development was represented by the increase in share of the sector in the Gross National Product (GNP) from
3 -6 percent (%) in 1960 to 9.5 percent (%)in 1970. However, the growth of industrial establishmqts is hampered by lack of fuel for continuous operations. The implication of this phenomenon is lower output as was the case of 346 manufacturing companiesg which experienced fuel shortages in Lagos State in October 1975. T A B L E 18. ANNUAL GROWTH RATES OF DOMESTIC CONSUMPTION OF TOTAL PETROLEUM PRODUCTS 1985 - 1990.
YEAR CONSUMPTION IN '000 METRIC ANNUAL GROWTH RATE IN TONS PERCENT (%)
SOURCE: Pipeline and Product Marketing Company Ltd., Sectoral Analysis Scheme 1987 -1990; and Nigerian Oil Industry Statistical Bulletin, 1987. ANNUAL CONSUMPTION AND SUPPIxY OF OF PETROLEUMS .------...... PERIOD INTERNAL CONSUMPTION DOMESTIC REFINERY OFF TAKE IMPORTS OF PETROLEUM PRODUCTS ------.------.------1 METRIC TONS METRIC TONS PER METRIC TONS PER DAY .------
SOURCE: Nigerian National Petroleum Corporation (NNPC). - 138 The poor trend in the supply of petroleum products in Nigeria also hit the consumers of kerosine and
cooking gas. About 15.4 millionlo urban population now I depend onliquifiedpetroleumgas for domestic cooking; i while about 80.2 millionl1 rural population that make use of kerosine to illuminate homes and domestic cooking have changed to fire wood. Perhaps, the effect of petroleum products shortages on the Nigerian economy could be fe4t more if one considers what the government looses on foreign exchange to import oil products in order to supplement local demand. Table 19 shows that the Federal Government imported about 449.6 million metric tons of petroleum products in 1976, 2.3 million metric tons (1979). The values of these imports definitely constituted a part drain on the country's foreign reserves. To conclude therefore, the social and economic consequences of petroleum product shortages in Nigeria
are quite severe and should not be under estimated. I The commercial life of the country and therefore her ! I economy is limited by the unsteady and interrupted I supply of petroleum products. It cannot therefore be said that the removal of road haulage from Schedule 1 to Schedule 2 of the Decree has had the desired effect 139 in so far as the oil marketing companies have not undertaken any large scale transportation of petroleum products from the various storage depots to their hinterland filling stations. The most fundamental policy actions with the longest range implications have to do with the establishment of additional refining capacity, the evolution of a system of the petroleum products distribution by pipelines, and the building of hore storage depots. Accordingly the Third National Development Plan included a programme for the establishment of an effective distribution network, involving strategically located storage depots for petroleum products interconnected to refineries. The construction of the 3001 kilometre network of multi-products pipelines and 19 associated depots in practically 19 states of the federation is a translation into reality of those programmes mapped out in the plan period. However, the major problem facing the existing refineries and depots is inadequate
I maintenance of equipment. Most of the electronic I I measuring equipment in the refineries and depots get I I damaged by the excessive power fluctuations. Considering the facilities and short coming in the multitude of policies developed by the government to 140 cope with the constraints, weaknesses and problems associated with the distribution of petroleum products in Nigeria, this study does not believe that the measures have yielded enough results. In order words, while it may seem that the Federal Government, within the limit of her resources, has adequately responded to the problems of shortages of petroleum products in the country, the efficiency in the system of distribution has not yet been attained. b 11. Ibid, 12. P. 0. Nwabuokei, Fundamentals of Statistics. (Koruna books,
1986, Enugu) , PP. 267 - 315. 13. Owen L. Davis and Peter L. Goldsmith, statistical Methods in Research and Production. (Oliver and Boyd, 1972,
Tweeddale Court, Edinburgh) PP. 179 - 194, PP. 238 - 248. CHAPTER FIVE. SUHMARY AND CONCLUSION. This study has paid attention to both the t structural and spatial distribution of petroleum products in Nigeria. The channels of distribution currently employed by the oil marketing companies was examined to a great extent and the opinions of the consumers of petroleum products were sought on the effectiveness of the system. Because the existing structure is defective, attempt was made to buhd a multiple regression model to determine the variable that significantly influence the quantity of oil distributed in the country. On the other hand, a trend analysis of fuel consumption in Nigeria was given a priority in the work so as to be able to make a reliable statement concerning the direction and movement of oil products within the country. Meanwhile, the main findings of this study shall be enumerated and appropriate recommendations made to benefit the oil marketing companies. Thereafter, an overall conclusion shall be drawn to round up the I entire work.
MAIN FINDINGS : I The major findings of this study are:- (i) Consumers of petroleum products are not satisfied with the present system of 144 distribution. (ii) The oil marketing companies agree that they have not performed an excellent job in the distribution of petroleum products in Nigeria. (iii) The persistent shortages of petroleum products are caused by: (a) Smuggling and diversion to neighbouring countries. b (b) Frequent strike actions by tanker drivers. (c) Break down of facilities at the depot. (iv) The major policy measures taken by the government in response to the constraints, weaknesses and problems associated with the distribution of petroleumproducts inNigeria are unsatisfactory.
(v) Uniform pricing of petroleum products in the country enhances equitable distribution of oil. (vi) The physical movement of oil products as I practised by the various marketers remains the same but what differ is their individual I levels of operations as to variations in the I number of retail outlets owned (market share), the number of delivery tankers and depots used. 145 (vii) Lagos state maintain 221 retail outlets out of a total of ll,OO3 petroleum product retail outlets in Nigeria as at May, 1986. This
represent 2 percent (%) of the total retail outlets. However, Lagos State has the highest consumption of fuel with a total consumption of 3,150,404M3 for the year 1988 (see Appendix iv). The least is Katsina
State in terms of consumption. B (viii) The dispersal of retail outlets of most oil marketing companies in every state favours the state capital. Thus, Lagos metropolis has the concentration of the companies1 filling/service stations. (ix) The PetroleumInspectorateundertheMinistry of Petroleum Resources is supposed to monitor the sales and distribution of petroleum products nation wide. It is empowered to close down any petrol station for hoarding fuel, adulteration or for selling above the official pump price. However, it appears the ministry is not discharging this duty effectively due to lack of manpower. All it does is to issue out permits and licences without carrying out its monitoring and regulatory role in the Nigerian petroleum industry. (x) On the issue of privatizing the refineries and pipeline and product marketing company of the NNPC, virtually all consumers interviewed objected to the idea. They opined that such act will be detrimental to the consumer. It is suggested that rather than privatization, government shoulc$ allow NNPC the autonomy to run as a full fledged enterprise with little or no interference.
On the basis of the findings of this study, we shall make the following recommendations aimed at improving the distribution efficiency of the oil marketing companies. 5.2.1 ROAD BUILDING AND MAINTENANCE PROGUE (RBMP). Bad roads and narrow, unsafe and weak bridges which exist in the country, mostly the characteristics of the rural areas, have real and substantial constraints to the movement of petroleum products from the refineries/depots to the filling stations. The road tankers often break down due to constant dilapidated roads and have resulted in product shortages in various parts of the country. As a matter 147 of top priority therefore, we recommend that the government of Nigeria (Federal and State) should evolve a Road Building and Maintenance Programme (RBMP) in their respective domain to take care of construction and repair of roads and bridges.
5.2.2 PROVIS-ION OF ADEQUATE FUEL TANKERS. A great limitation is imposed on the distribution of petroleum products in Nigeria by lack of adequate supply of fuel tankers. To combat this problems, the Federal Government should insist that oil maheters
should own and operate not less than 30 percent of the total road tanker fleet required for effective distribution of their products throughout the country.
The remaining bulk of 70 percent (%) of fuel tankers may be provided by the professional transporters. Government should render substantial assistance to the indigenous bulk lorry owners by making available to them the facilities provided by the Nigeria Bank for Commerce and Industry (NBCI). Furthermore, the government should take steps to reduce the rather high insurance premium on road tankers and issue directives to tanker dealers to have adequate supply of road tankers and to stock essential parts.
5.2.3 THE TANKER DRIVERS. Adequate attention need to be given to this category of workers in the down stream operation of the oil industry. Recently they have constituted themselves into a powerful bloc that threatens the physical distribution process. They are pocketful of drivers that belong to the National Union of Petroleum
.L and Natural Gas Workers (NUPENG). They arrogate powers to themselves such that tanker owners or marketers can not control drivers under their employ. It has come to a stage where they have the sole right to decide when to embark on strike actions without due 0 considerations to the consumer who bears the brunt of such actions. It is now clear that other trade unions w must first of all sought the co-operation of tanker drivers before they embark on strike actions for the selfish aim of pressing home their demands at the expense of innocent Nigerians. The pressure and embarrassment caused the nation by this group of workers is such that in a recent 5 strike action embarked by its members, the Federal Military Government brought in the Military tankers to safe its face from inherent pressure and embarrassment. It is in the light of this that it is recommended that marketers should own their trucks and hire drivers who should not belong to any of the trade unions and should
be subjected to full control of management. .c Tanker owners are not helping the matter either. 149 A situation where a tanker driver is paid =N=5OO.00 per month as salary is inhuman. During the field study, the drivers seriously stressed on the issue of poor salary. One should realise that this crop of workers have families they are responsible to. An upward review. of salary of tanker drivers by tanker owners will be in the best interest of this nation.
5.2.4 RETAIL OUTLET STORAGE. The oil marketing companies are adviced to build up sufficient reserves of oil products at the bretail outlets at all times in order to smoothen product supply during shortages or as a guide against uncertainties associated with oil deliveries. Furthermore, efforts should be made by each marketer to expand its retail outlet storage facilities where necessary.
5.2.5 EFFICIENT PRODUCT DISTRIBUTION. Efficient product distribution can be ensured by processing the crude oil, by having functioning refineries and by adequate depots and pipeline systems. Once the present on-going projects are commissioned, and the refineries are put in order, the problem, from the technical point of view, would have been substantially solved.
5.2.6 COMMERCIAL PROBLEMS. There will still remain commercial problems: 150 supply to the marketers, marketers' margin and problems of errant behaviour such as smuggling, illegal
bunkering, hoarding and adulteration. Correct pricing I and adequate supply is the key to most of these behaviourial problems. The people will expect the
judicious use of the additional funds realised from I I higher prices to improve transportation, railways, roads, schools, hospitals and to reduce the cost of vehicles and autocycles. This can be done by paying the additional monies into a special fund. 5.2.7 GOVERNMENT INVOLVEMENT IN DOWN STREAM OPERATION. Government involved itself in the importation, distribution and sale of petroleum products. It should relinquish these roles to the Nigerian National Petroleum Corporation slowly. Of course, the socio-political problems of opting out in order to allow prices to float must be expected. Whatever it is, the refinery and distribution system is a straight commercial arrangements that clearly had no political connotations. This is actually true of all the investments in oil and gas, since these investments can, with proper management, be made to pay for themselves. 5.2.8 UNIFOFUU PRICING SYSTEM. In view of the fact that the uniform pricing of petroleum products enhance equitable distribution of oil in Nigeria, the policy should continue. The prices of petroleum products (petrol, diesel and kerosine) in the country should not be left to the interplay of supply and demand. DESIGN AND DISPERSAL OF RETAIL OUTLETS.
At present, the spread of petrol filling/service 1 station in the country does not favour the rural areas. That is, there is over concentration of retail obtlets in the urban centres even though market exists in the rural areas. The implication of this phenomenon is that a customer at the village who travels longer distance before getting to a petrol filling station pays higher (transportation cost added) than the urban dweller for the same quantity of fuel bought. Theref ore, in order to eliminate "black marketsffin the rural areas and as well ensure equitable distribution of oil between the urban and rural customers, the oil marketers should spread their retail outlets more evenly. Meanwhile, one other observation with most petrol filling stations in the urban centres is lack of enough packing space for vehicles on queue. The congestion at the premises actually inhibits the rate at which customers are served. Therefore, precaution should be 152 taken against future design of retail outlet to guarantee hitch-free environment. 5.2.10 STORAGE DEPOTS. The Government should encourage the oil marketing
companies to own their individual storage depots I
I outside their respective filling service stations. In I
other words, the law banning the oil marketers from I / owning and operating different storage depots other 1 than those of the NNPC should be revoked. The reason being that the existing NNPC depots in the countryb are not functioning well and can not guarantee constant supply of fuel either due to break down in the loading arms, lack of spare parts, shortage of water, or the inadequacies of National Electric Power Authority (NEPA). Therefore, it is recommended that the oil marketing companies should be allowed to own and operate their storage depots if they so wish as a way of supplementing those provided by the NNPC and as well limit the number of break-downs in the existing ones.
2.11 ALTERNATIVE MARKETING CHANNEL. In the light of the recommendations made so far, an alternative channel of distribution slightly different from the existing structure may emerge as shown in figure 9 In the structure in figure 9, every marketer has its own storage depot stationed outside its retail
154 outlets. The company may make use of its storage depot or that of NNPC to receive its product allocation from the refinery. The NNPC is given maximum autonomy to manage the down stream operation. A system approach I to distribution is adopted here by creating an avenue whereby participants in the distribution process sit together to discuss Government policy direction on petroleumproduct distribution. There is communication flow across sectors and each sector understalds and implement directives of government through the NNPC. NNPC is given full powers to contract and discipline transporters and their agents accordingly. NNPC is to be held responsible in the case of break down in the distributive process since all participants are subjected to NNPC control. The advantages of this structure over the existing one is that there is no duplication of function and as such no room for buck passing. There is clarity in the chain of command, accountability and probity. The system is free from governmental pollution for example the influence of the military or politician as the case may be. Furthermore, the NNPC depots may no longer be over stretched or over utilized and as such the rate at which they break-down will be reduced. 155 5.3 SUGGESTIONS FOR FURTHER STUDIES. The products of the oil marketing companies are many. They include: (i) Liquif ied petroleum gas (cooking gas) (ii) Premium motor spirit (super petro) (iii) Dual purpose kerosine (Household and jet fuel) (iv) Automotive Gas oil (Diesel) (v) Low pour fuel oil (vi) High pour fuel oil However, this study only looked into' those
products that are used in automobiles - namely petrol and diesel, and kerosine used for household. It is therefore suggested that interested researchers should investigate other product areas like those that serve aviation industry and cooking gas. Future work concerning demand, supply and distribution of petroleum products (petrol, kerosine and diesel) should be confined to other states of Nigeria that have not been studied. LIMITATION OF THE FIELD STUDY: It is pertinent to mention that the researcher did not find it easy in the administration and collection of the questionnaires during the field study. This is due to the sensitive nature of the research topic in the light of the current political crises in the country. 156 Most of the executives of the NNPC could not lend themselves to personal interviews or respond to the questionnaires administered to them. Their reason was that the current political instability in the country is connected to the oil industry and the subsequent shortage of fuel. They would not want to respond to questionnaires that are sensitive to the situation or possibly expose them as sabotaging government effort at finding lasting peace in the country. The sit3ation was the same for executives of oil marketing companies. It was not an easy task to break through this barrier even after convincing them that their response was purely for academic work. The federal departments granted the researcher interview on the promise that no particular mention should be made about them. The transporters of petroleum products (i. e tanker drivers) proved the most difficult to deal with. Their reasons was that the public they serve now see them as sabotaging government effort. The researcher was nearly manhandled the first day as I was mistaken for a press man. It took me one week of pleading with the chairman of the union before I could be allowed an interview. I was granted an interview andpossible administeringof questionnaires. 158
3. The pipeline network system introduced by the NNPC has altered drastically the traditional pattern of distribution by roads, rail and sea. The use of pipeline for the transportation of petroleum products over long distances although new in Nigeria, is the most efficient and economical way of moving large and steady volume of liquids.
4. The social and economic consequences of petroleum products shortages in Nigeria are severe and therefore should not be under estimated. 5. It ishopedthatwhenthegovernmentexecutesall the policy recommendation made in this report, the oil marketing companies will have comfortable grounds to attain efficiency in the distribution of petroleum products throughout the country. 159 BIBLIOGRAPHY. Aaker, D. A. et al, Marketins Research, Private and Public Sector Decision, John Willy and Sons Inc., 1980 London. Beckman, T. N., Wholesalins, The Ronald Press, 1926, New York
Borsodi, R., The Distribution Ase, Appleton & Company, 1929, New York. Bowersox, D. J. et al, Readinss in Physical Distribution b Manasement: The Losistic of Marketins, The Macmillian Company, 1969, New York.
Cherington, P. T., The Element of Marketins, The Macmillian Press, 1920, New York. Clark, F. E., Princioles of Marketins, The Macmillian Press, 1922, New York. Converse, P. D., Sellins Policies, Prentice-hall, Inc., 1927, Englewood Clitts, New Jersey.
Davis, 0. L. et al, Statistical Methods in Research and Production, Oliver and Boyd, 1972, Tweeddale Court, Edinburgh. Engel, J. F. et all Promotional Strategy, Richard Irwin Inc., 1982, Illinois.
Gilbert & Churchill Jr., Marketin? Research, Methodolosical 160 Foundation, The Dryden Press, 1979, Illinois. Holloway, R. J. et all Consumer Behaviour, Contemworarv
Research in Action. Houghton I Mifflin Company, 1971, Boston. 12. Kelly, E. J-. et all Manaserial Marketing, Perswective and View Points, R . DlIrwin, Inc . , 1967 Illinois.
13. Kotler, P., Marketins- Manaqement:- Analysis, Planninq and Control, Prentice-b
hall, Inc., 1984, New Jersey. , 14. Kotler, P., Marketins Manaqement: Analysis,
> Planninq- and Control, Prentice- hall, Inc. , 1980 Englewood Clitts, New Jersey. London, D et all Consumer Behaviour, Mcgraw-hill, 1979, New York. Maynards, H. H. , Princinle of Marketing, Ronald Press, 1967, New York. Nwabuokei, P. O., Fundamental of Statistics. Koruna Books 1986, Enugu, Nigeria. Nwokoye, N. G. , Modern Marketins for Nigeria, Macmillian Press Ltd, 1981Nigeria. Pride, W. M. et all Market ins, Basic Conce~t and Decisions. H. Mifflin Company, 1985, Boston. 161 20. Shaw, A. W., An Amroach to Business Problem, Harvard University Press, 1916, Cambridge, Mars. 21. Stanton, W. J., Fundamental of Marketing, Mcgraw- hill, 1984, Tokyo. 22. Stanton, W. J., Fundamentals of Marketins, Mcgraw- hill, Bookcompany, 1978, New York. 23. Watson, C. R., Consumer Behaviour: A Managerial View Point. Austin Press,, 1975, Austin tex. 24. William, T. G., Consumer Behaviour, West Pub. Co . , 1982, St. Paul. 162 JOURNALS, NEWSPAPERS, ETC. 1. Aminu, J., "Oil and the National Conference (3)11, BusinessTimes, Daily TimesNigeriaPlc, March, 1994, Lagos. 2. Aminu, J., "Oil and the National Conference (4)", Business Times, Daily Times Nigeria Plc, March, 1994, Lagos.
3. Audu, M. O., "Distribution of Petroleum Products in Nigeria: A Study of Selected Oil b Marketing CompaniesI1,Unpub1ishedM.B.A research work, Department of Marketing, 1985, UNEC. 4. Bello,M.S., "Risk Management in the Nigerian Oil IndustryI1, NNPC. NNPC group, 1990, Lagos. 5. Crude Oil Marketing Services (COMS), I1History of Oil MarketinginNigerian,NNPC, NNPCgroup, 1990, Lagos. 6. Department of Petroleum Resources, "The 1988 Annual Report of the Nigerian Petroleum Industryu, Ministry of Petroleum Resources, 1989, Lagos.
7. Ekpo, U., "Fuel Scarcity Hits Lagos, Other Cities", Business Times, Daily Times Nigeria P1c.m Dec., 1992, Lagos. 8. Federal Republic of Nigeria, "1991 Population Census 163 (Provisional result) for Lagos Statev, National Population Commission, 1992, Enugu . 9. Heskett, J. L., "Logistics - Essentials to Strategy",
Harvard Business Review, Nov. - Dec. I 1977. Jeffries, R.S. Jr., I1DistributionManagement: Failures and Solutionsf1 Business Horizons, April 1974. Kupolokun, F. et all I1WhyOil Subsidy Should not be rdnoved" BusinessTimes, Daily TimesNigeriaPlc, March 1993, Lagos. 12. NNPC, "Petroleum Exploration and Development in Nigeriav, Petroleum Training Institute Press, 1984, Efurun. Onyiuke, T. C . , "Know Your Depots: Enugu Depotf1NNPC
News Bulletin, Nelag & Co Ltd., July, 1990, Lagos. Pegram, R. M., "Selecting and Evaluating distributor^^^, The Conference Board, 1965, New York. Perreault, W.D. et a1 I1Physical Distribution Service in Industrial Purchase Decisionw, Journal of Marketins, April 1976. Ughamadu , N . , "Linking all Refineries with Pipelines1I, Business Times, Daily TimesNigeriaPlc, Dec. 1991, Lagos.
17. Ughamadu, N., "Open trial, Confessions on Oil Shortageu, Business Times. Daily Times Nigeria Plc, April 1994, Lagos. 165 Definition of terms. (1) LIFTING: The quantity of crude oil or refined petroleum products moved from petroleum storage facilities by ocean- going tanker, pipelines, rail tank wagon, coastal vessels and road tankers. (2) PIPELINE: A. transportation system for the conveyance of mineral oils, natural gas and any of their derivatives or components and also any substance (including steam and water) used or intended to be used in the production o refining or conveying of mineral oils, natural gas andb any of their derivatives or components. (3) STOCKS: Inventories of crude oil and refined products at refineries bulk terminals or in pipelines. There are three
kinds of stocks - available, reserve and dead: Available stock can be used immediately. Reserve stocks are accumulated in one season to supplement production in a season of peak demand. Dead stock are not available for immediate use.
(4) BARREL (BBL): A unit of measurement of volume for crude oil and oil products. It has its origin in United State where it is equivalent to 42 U.S. gallons or 35 imperial gallons. It is also equivalent to 0.158987 cubic metres. (5) BRIDGING: The movement of petroleum products from one zone to another to off set a short fall. In petroleum product marketing, it is usually by road trucks.
(6) DOWN STREAM OPERATIONS: All operations that take place 166 after crude oil is produced. These activities include transportation, refining and marketing.
( 7 ) PETROLEUM PRODUCTS : Products manufactured from crude petroleum. (8) SUPPLY: The total quantity of crude oil refined products available at a given period of time. APPENDIX 1. CALCULATION OF EXPECTED FREQUENCIES. The assumption in Table 14 was that the respondents treated the questionnaires independently and that the observed frequency in any class might have been by chance. Theref ore, the I1expectedl1frequencies I were calculated from the contingency table of I1observedl1frequencies usingthe following principles1. Each expected frequency is obtained by taking the product of the respective row and column totals and dividing the product by the total frequency for the whole table shown. The expected number of oil marketing companies' executives with the rating "Highly Efficientu
= 13 x 91 - 3.80 311 The expected number of consumers with the rating "Highly Efficientn
= 13 x 203 - 8.49
The expected number of transporters with the rating "Highly Efficientn
The expected number of oil marketing companies' executives with the rating "Efficient"
= 6x91 - 1.75
5. The expected number of consumers with the rating
311 6. The expected number of transporters with the rating "Efficient"
= 6x17 - 0.33 ' 311
7. The expected number of oil marketing companies' executives with the rating "Averageu
= 85 x 91 - 24.9
8. The expected number of consumers with the rating
I1Averageu = 85 x 203 - 55.5 311 9. The expected number of transporters with the rating "Averagen
= 85 x 17 - 4.60 311 10. The expected number of oil marketing companies' executives with the rating "Not Efficient"
= 132 x 91 - 38.6 11. The expected number of consumers with the rating
12. The expected number of transporters with the rating "Not EfficientH
13. The expected number of oil marketing comp&iesr executives with the rating flVeryInefficientu
14. The expected number of consumers with the rating "Very Inefficientu.
15. The expected number of transporters with the rating "Very Inefficient".
The results of these calculations are presented
in table 14. APPENDIX I1
COMPUTATION OF x2 AND TEST OF HYPOTHESES I. The frequencies of respondents rating on the level of satisfaction derived fromthe present system of distribution
of petroleum products were obtained from question 2 of the consumers' questionnaire and question 4 of the questionnaire administered to the executives of the marketing companies and transporters of petroleum products (tanker drivers). Chi-square was usedto test whether the observed frequencies in the distribution differ significantly from the exfiected frequencies. Thus the statistic criterion is
xZ ------(flj- eijI2 eij Where fij - observed frequency in the i - jth cell
eij = expected frequency in the i jth cell Xz - value of the random variable X2 whose sampling distribution is approximated closely by the Chi-square distribution1'. The Chi-square was calculated from Table 14 as follows.
X2 = (13 - 3.80)' + (0 - 8.49)' + (0 - 0.71)' + (0 - 1.75)' 3.80 8.49 0.71 1.75 + (0-3.92)' + (6-0.33)2 + (26-24.9)' 3.92 0.33 24.9
+ (56 - 55.5)2 + (3 - 4.60)' + (39 - 38.6)' 55.5 4.60 38.6 The degree of freedom of any row is (c - 1) and that of any
column is (r - 1) - For the entire contingency table, the degree
of freedom is (c - 1) (r - 1) , that is (3 - 1) (5 - 1) ='8.
At 5 percent (%) level of significance the value of the tabulated X2 with 8 degrees of freedom (X2,,,.,,)is 15.5.
.... Test of Hv~othesesI:- X2 (139.0) is more than the tabulated value (15.5) at 5
percent (%) level of significance (X2 X".05), we reject the null hypotheses (H,) and conclude that the consumers of petroleum products are not satisfied with the present system of distribution. APPENDIX I11 ESTIMATION OF REGRESSION EOUATION.
I Period Sales volume '000,000 Breakdown ofl~ercentageResponse I litres in Lagos State facilities (%) I Response
4.48 65 70.0
470
567
640
286
Let Y = Sales volume and X = Breakdown of facilities response.
Ste~- bv - steD Calculation. (i) Calculate sum of square of C about mean
ie Number of observations - 5
X - 282
Hence X - 282/5 - 56.4 Crude sum of squares - 16,414
Correction for the mean = ( X)'/n = (282)'/5 = 15,904.8
Hence, sum of squares about mean S, = 16,414 - 15,904.8 = 509.2
S, = 509.2 (ii) Calculate sum of squares of Y about mean
Hence Y = 2,411/5 = 482.2
Crude sum of squares = 1,234,489
Correction for the mean = (2411)'/5 = 1,162, 584 .? .
Hence sum of square about mean, S, = 1,234,489 - 1,162,584.2
(iii) Calculate sum of products of X and Y about their - respective means.
Crude sum of products of X and Y; XY = 135,030
Correction for the means = X ~/n= (282) (2,41)/5
Sum of products about mean, S, = XY - X Y
( iv) Calculate Regression Coefficient of Y upon X
Regression Coefficient b = S,/S, = -950.4/509.2 (v) Calculate Regression equation of Y upon X
This is: Y = Y + b(X - X)
ie Y = 482.2 + (-1.866)(X - 56.4)
Y = 482.2 - 1.866 X + 105.2
Y = 587.4 - 1.866 X. and is used to predict the expected value of sales volume given the number of observation of break down of facilities.
(vi) Calculate Regression of X upon Y b Regression Coefficient of X upon Y = b1
b1 = Sxy/ Syy = -950.4/71,904.8 = -0.013 Hence the Regression equation is
X = 56.4 + (-0.013) (Y - 482.2)
X = 56.4 + 0.013Y + 6.269
X = 62.67 - 0.013Y.
This could be used to predict the expected value of observed break down of facilities given the annual sales volume of - marketing companies in Lagos State. APPENDIX IV
Critical Values of the t Distribution d.f.
1 2 3 4 5
6 7 8 9 10
11 12 13 14 15
16 17 18 19 20
21 22 23 24 25
26 26 27 27 28 28 29 29 inf . inf. I,
APPENDIX V)
DOFZSTIC CGrSWPION OF PZTROLEXX WODU3'S BY STATES FOR THE YEAR 1988
AKWA-ISOK ANANBRA B4UCXI EZNDEL BENUE EOFA70 CROSS PSODZrCTS EiImii
Liquefied Petroleum Gas 1 268 3993 93L 19085 591 1358 1083 ! Aviation Gasoline ------1 j Premiun Kotor Spirit 28850 233528 75402 31 951 9 85327 161403 981 67 1 DUAL PURPOSE KEROSEW: 1 j (i) Household 73337 121614 28753 1L7962 3569 40294 30376 (ii) Aviation Turbine - 84 5 76 3 661 5 1000 47 3521 ; Automotive Gas Oil 7496 91 395 37266 193096 30906 82909 34782 FUEL OIL: (i) 'Hi& Pour - - - - - 31 - I (ii) Iow pour 81 4 16958 5346 41905 735 8662 46947 Lubricating Oils 431 1 5521 2839 16111 3448 4786 2075 : Greases 5 51 L 166 848 46 384 18 ' Petroleum Jelly/'u(axes etc - 9 6 1 81 10 - Bitumen 8: Asphalt - 6931 958 11236 1642 293 1692 Base Oils . - - - - - 22 - Petroleum Chemicals ------TOTAL I 5 220~ 1551363--- , 1 534 28 75456 8 , 1 8264 1300199 , 218661 I I NOTE: I ALL FIGURES SRE IN CUBIC Include, returns for some areas of Akwa Ibom State due to logistic problems. K!lTFXS. . - - 176j I .. Includes returns for some areas of Katsina State due to logistic probierns. APPENDIX VI.)
(com8n)
STATES ZTSTXA. FdABA. ILSlGOS FJIGFR 1 KL? Ohm OYO PLtE3.C I BIVEiS SOKCTO TCTAi PR ODUCT S 1 NATI3?ML 1 C~3E:SlJPaYTION I Liquefied Petroleum Gas 281 3309 42927 343 266 3275 12331 5262 [ 71136 I Aviation Gasoline ------e84- 1 123981-
Premium Motor Spirit 20249 1LO1 92 901 172 92850 217843 136416 379537 1653211 157312 9&164 41 61 226 I ' I DUAL PtFiPOSE KEXOSEhX : I (i) Household 21111 / 7b922 233727 24092 1 01037 55282 176220 lOo92p 1 L7939 44837 , 15311 66 - (ii) Aviation Turbine - 39 397190 - - 14 41, 469 15331 86 383838 Autoxotive Gas Oil 1 3735 63757 439995 3951 5 88601 27493 125810 62934 127575 L5505 18 32094 FUEL OIL (i) High Pour - 32 509714 30 207411 - 703 - - 28 531510 (ii) hwPour 3007 62471 528395 359 561 72 12494 19376 6105 6042 27347 910598 Lubricating Oils 431; 3777 50780 2340 4?O6 3j80 12940 5646 6579 4176 179499 : Greeses 2 995 4568 - 1276 1558 944 195 h46 14 15050 Petroleum ~elly/~axesetc - - 556 - - 1 9 19 6 1 - 1004 Bitumen & Asphalt 250 3907 63090 564 2526 477 12037 1576 2256 1333 -144164 Base Oils - - 69500 - - - 53 - 55 21, 68851 Petroleum Chemicals ------
TOTAL 40099 3531 52 3150h04 160093 ( 495570 240190 739998 368958 360978 218399 1 9883011 I NOTE: ALL FIGURES ARE IN CTJEIC KJERES. 177 APPENDIX VII QUESTIONNAIRE FOR THE CONSUMERS OF PETROLEUX PRODUCTS. Dear Sir/Madam, This questionnaire is designed to study the system of distribution of petroleum products (petrol, kerosine and diesel) in Nigeria. The aim is to find ways by which the oil marketing companies can best serve you. As a consumer, therefore, you are in a better position to comment freely on the effectiveness of the existing distridutive channels in the country. This study is purely for academic purposes and will be .. handled with utmost confidence. Your co-operation will be most helpful and very much appreciated. Thank you......
Please tick ( ) the appropriate alternative(~)or provide the information where necessary:- 1. Your L. G. A. of residence? .....*...... 2. How would you rate the way petroleum products (petrol, kerosine and diesel) are distributed in Nigeria?
(a) Highly efficient ( )
(b) Efficient ( 1
(c) Average ( 1 (d) Not efficient ( )
(e) Very inefficient ( )
3. Based on your rating in (2), would you say that you are satisfied with the present system of distributing petroleum products in the country?
4. What is/are your reason(s) for the choice in (3) above? (a) Delay in delivery of oil due to bad roads, shortage of tankers, industrial unrest, b defects in rail transportation, etc ( 1 (b) Hoarding and smuggling contribute to
short supply in petrol ( )
(c) Constant supply of fuel ( ) (d) There are no delays in services in the
filling stations ( 1 (e) Too much time is wasted at the filling
station ( ) (f) There is over-concentration of petroleum retailing outlets in the urban centres to the extent that there are few or non in the
rural areas where demand is equally high ( ) (g) Conspiracy between drivers and invoice clerks at the refineries or depots threatens
distribution efficiency ( 1 (h) Other reasons (specify) ...... 180
5. If asked to assess the performance of the oil marketing companies and the independent marketers in their distribution function would you say they have failed the nation?
(a) Yes ( ) (b) NO 6. Why? (Please explain your answer to question 5)
Which of the oil marketing companies (or petrol filling stations) is your favourite?
(c) Agip ( 1
(d) Texaco ( )
(f) Unipetrol ( 1
(9) Total ( )
(h) Acorn ( 1
(i) Saleh ( )
(j) Premier ( 1 (k) Other (specify)
Why do you prefer your present filling station (i.e., company) to other suppliers? (Tick as many as apply) Preferential service Prompt attendance Availability of fuel at most time Discount in price of fuel bought Less congestion of customers Neatness of the premises Nearness to your location Credit facility Naira per litre of oil (i.e., decency in charging per litre) Other reasons (specify)
Do you agree that unif ompricing os petroleum products in Nigeria enhances equitable distribution of fuel?
Yes ( No ( ) Would you say that the system has contributed to the distribution efficiency of the oil marketing companies/ independent markets?
(a) Yes ( (b) No ( ) (i) Based on your judgements in (9) and (10), would you like the federal government to repeal the order on uniform pricing of oil products?
(a) Yes ( 1 (b) No ( (ii) Please, give further reasons
12. Any suggestion(s) to the company chosen in (7) which may enable it render better services to you:
...... B..... Would you like the federal government to privatize the refineries and the pipeline and product marketing company of the NNPC?
(a) Yes ( ) (b) No ( 0 Why?
...... Thank you.
G. A. EJIM Department of Marketing University of Nigeria Enugu Campus. APPENDIX VIII QUESTIONNAIRE FOR THE OFFICIALS OF THE NNPC
AT REFINERIES AND DEPOTS. Dear Sir/Madam, This questionnaire is designed to study the system of distribution of petroleum products (petrol, kerosine and diesel) -- in Nigeria. The aim is to seek ways of improving the efficiency of channel operations and minimizing the cost of moving oil products to the consumers. Such solution will be recommemed to the various oil marketing companies with a view to winning consumer favourable attitude. You and other colleagues in the corporation have been \ considered best qualified to answer questions regarding this topic. The information sought is purely for academic purposes and will be treated in strictest confidence. The courtesy shown will be duly acknowledged. Thank you.
Please, tick ( ) the appropriate alternative(s1 or provide the information where necessary:- 1. Location of refinery/depot ...... 2. What is the capacity of the refinery/depot? ...... 3. How long does it last? .... days .... weeks .... months 4. Whatarethearea/districts/zones/regions/states served by the refinery/depot? (Please, specify accordingly) ......
5 Means of oil distribution is/are by
(a) Road (lorry tankers) ( (b) Water (coastal tankers) ( (c) Railway (tanker wagons) ( ) (d) Son (ocean tankers) ( (e) Barge ( (f) Air ( b (i) Is there any delay in the service to the customers for petroleum products at the refinery or depots?
(ii) If any, state period of delay ...... days ...... weeks ...... months. 7. What are the causes of the delay(s)? (a) Increase in the number of transporters/ customers to be attended to (
(b) Inadequate service facilities ( (c) Breakdown of facilities such as the delivery system ( 1
(dl Lack of adequate personnel ( (e) Lack of enough space for queuing and turning at the filling point ( (f) Lack of co-operation from the tanker drivers ( ) (g) Irresponsibility on the part of invoice clerks ( ) How? (Please, specify)
(h) Others (specify) ...... 8. (i) Assuming arrival rate and service rate per customer are both random what is the average waiting time per customer? ...... (ii) Do you consider this number of days/hours/minutes spent on the queue by the customer an ideal time for service?
(a) Yes ( 1 (b) No ( 1 (iii) If no, how long would you like a customer ,to be on queue, all things being equal? ...... 9. Have you any idea about service rate in the past?
(a) Yes ( 1 (b) No ( 1 10. If yes, please, state the figures with specific time periods in the past:
11. What factor(s) determine the queue length?
(a) Customers1 arrival rate and service rate ( ) (b) The rate of sale of petroleum product at the retailing outlets- ( 1 (c) The number of refineries/depots available to
the customer ( 1 (dl Others (specify) ......
12. What method do you adopt in the allocation of petroleum products to major and independent marketers? (a) Random Allocation (b) First come first serve (c) Rationing based on quota (dl Others (specify)
13. Any general comments on the functioning of the refinery/ depot:
...... Thank you.
G. A. EJIM Department of Marketing University of Nigeria Enugu Campus. APPENDIX IX QUESTIONNAIRE FOR EXECUTIVES OF OIL MARKETING
COMPANIES AND INDEPENDENT MARKETERS. Dear Sir/Madam, This questionnaire is designed to study the system of distribution of petroleum products (petrol, kerosine and diesel) t in Nigeria. The aim is to seek ways of improving the efficiency of channel operations and minimizing the cost of moving oil products to the consumers. b Such solution will be recommended to the various oil marketing companies with a view to winning consumer favourable attitude. Your organisation belongs to the samples we are using in
i this study. All information supplied for this study will be treated in strict confidence. Please, feel free to assist the researcher in his enquiries. Thank you. Please tick ( ) the appropriate alternative(s) or provide the information where necessary:- 1. Name of your company: ...... 2. Number of the company's filling stations in (i) The country ...... (ii) The state (Please, specify accordingly)
3. (i) How many oil products does your company market? (ii) What are they? (Tick as many as apply) Liquified petroleum gas ( ) Premium motor spirit ( ) Regular motor spirit ( Dual purpose kerosine ( 1 Automotive Gas oil ( ) Low pour fuel oil ( ) High pour fuel oil ( ) Others (specify)
How would you rate the way petroleum products are distributed in Nigeria? (a) Highly efficient ( ) (b) Efficient ( ) (c) Average ( 1 (d) Not efficient ( ) (e) Very inefficient ( ) Based on your rating in (4) above, would you say that you are satisfied with the present system of distributing petroleum products in the country? (a) Yes ( (b) No ( ) Why?
...... What would you say are the causes of persistent shortages of petroleum products in the country? (Tick as many as apply (a) Occasional repair work on refineries ( ) (b) Inadequate storage capacity ( ) ~oarding/Diversion ( ) Smuggling ( 1 Closing of depots especially during public holiday ( Industrial unrest ( Conspiracy between tanker drivers and invoice clerks at the refinery/depot ( ) Non-availability of haulage trucks due to high cost ( Delay in transportation ( Others (specify)......
...... 8. What are the major problems currently faced by your company in the distribution of petroleum products in Nigeria? (Tick as many as apply) Bad roads ( 1 Inadequate storage capacity/facilities ( ) Shortage of delivery tankers/wagons ( ) Lack of co-operation from the tanker ( drivers (please, state the nature of problem) ...... Closing of petrol depots on Sundays and public holidays ( Poor berthing facilities ( Limited number of depots and refineries ( Others (specify) ...... 9. What is the average minimum level of petrol reserve that your company maintains at all times? 190 10. (i) Is the company's re-order stock level .for petrol different from the figure furnished in (9) ? (a) Yes ( ) (b) No ( (ii) If yes, what is it? ...... (iii) What is the lead time? ...... (iv) What is the average sales rate (cubic litres/time)? ...... (i) How does your company divide the Nigerian market for selling operations? (a) Regions ( ) (b) States ( (c) Zones ( ) (d) Districts ( (e) Areas ( ) (f) Cities ( 1 (g) Towns ( 1 (h) Villages ( ) (i) Combination of two or more of theabove (specify) ...... (ii) Name the geographical divisions; and their affliates if any: ...... What is the reason for adopting the existing classification in 11 (ii) above? (a) Population factor ( ) (b) Nearness to refinery/depot ( ) (c) Number of industries ( 1 (d) Cost factor ( ) (e) Other marketing companies use the pattern ( 1 (f) Administrative reasons ) J 191 (g) Other (specify)
...... 13. What impact does it have on the distribution efficiency/ effectiveness if such geographical arrangements as in 11 (ii) are altered? (a) More.geographica1 divisions will create more effectiveness in distribution ( ) (b) Fewer geographical divisions will create more effectiveness in distribution ( ) (c) More geographical divisions will result in less distribution effectiveness d (d) Fewer geographical divisions will result in less distribution effectiveness ( ) 14. Do other oil marketing companies or independent marketers follow the same geographical pattern described in 11 (ii)? (a) Yes ( ) (b) No ( ) 15. (i) Which part of the country (region, zone, area, district) has highest consumption of fuel? ...... (ii) How much with respect to time? (Please specify quantity consumed and the corresponding year, month or season) ...... (iii) What factors are responsible for the high level of fuel consumption specified in 15 (i)? (a) Population ( 1 (b) Number of industries ( 1 (c) Others (specify);
...... 16. Does your company's market concentration correspond to the part of the country specified in 15 (i)? (a) Yes ( ) (b) No ( ) 1: no, specify: ...... What. 1s your company's market share in % ......
( 1 i How many petrol depots in the country does your company use?
,ilj Which of the refineries do you take supplies from? ...... uc y~uthink Nigeria has got enough
, I Petrol depots?
(at Yes ( (b) No ( ).
, Ref~nerles' b ;a) Yes ) (b) No ( I f ‘ria' to 20 above, what number would you recommend in the .
! 1) depots ! 1 (11) refine~~es ( 1 Do you aqr-ep that uniform pricing of petroleum products in N I (ft->ria p~lt~~mr~ii; ~qui table distribution of fuel? : 3) Yes I I (b) NO ( Nou10 you : t:!,it the system has contributed to the distr~but~c-)nc.tfii-~erlcy af the oil marketing companies/ 1 I!L IT,< I! krt- ~f S? , : ?3 ; \ ib~ NG I ) i:(i:;c.ci on your judgements in (22) and (231, would you like * !:e Ffxkrai Government to repeal the order on uniform ' L<-LII~of 011 products? I Yes 1 (b) No 1 LK; you think the G~vernmenthas adequately responded to the (je:.nercllproblems of effective distribution of petroleum ~JKodiicts in Nigeria? (a) Yes ( (b) No ( With reference to question (25), would~yousay that the existing policy measures aimed at eliminating distributioll bottlenecks have made any positive impact? (a) Yes ( 1 (b) No ( ) 27. If 'no' what do you think are the reasons? 28. Would you like the Federal Government to privatize refineries and the pipeline and product marketing conzymny of the NNPC? 29. Why? ...... I ...... b 30. Any further comments: Thank you. APPENDIX XI IRE FOR TRANSPORTERS OF PETROLEW Dear Sir/Madam, This questionnaire is designed to study the system ct distribution of petroleum products (petrol, kerosine and diesel) in Nigeria. The aim is to find ways of improving the ef ficifiicy of channel operations and minimizing the cost.~fmoving oil products to the consumer. Such solution will be reconmended to the various oil marketing companies with a view tu wirr~1j.119 4 consumer favourable attitude. Your organisation belongs to the samples we are using in tile study. All infirmation supplied for this st~~dywill he t,r~i?+c~I in strict confidence . Please, feel free to assi :; t the J LSL.~~L:L,. L' in his enquiries. Thank you. Please ( ) the appropriate a1ternati.v~(s) LII- provide rl~e information where necessary. 1. What is the capacity of your tanker ...... 2. What destinations do you normally cover (1) The state ...... (ii) The Local Governme lt area ...... * 3. (i) How many' petroleum products do you distr:itule? I ...... I '* I What are they? (Tick an many as apgly) Liquified petroleum gas (LPG) ( 1 (b) Premium motor spirit (PMS or Petrol) ( (c) Dual purpose kerosine (DPK or Kerosine) ( 1 (d) Automotive gas oil (AGO or Diesel) ( ) (e) Low pc~'fuel oil (LPFO) ( ) (f) Hiqc pour fuel oil (HPFO) (g), *',;hers (specify) 4. How would you rate the way petroleum prodwtr; are distriSuted In Nigeria? 4 (a) Highly efficient ( 1 (b) Efficient ( ) (c) Average (d) Not efficient ( 1 (e) Very inefficient ( ) 5. Based on your rating in (4) above, wu~lldyou s,iy t.htit: you are satisfied with the pit syst:an distributing petrolehi..,' . lucts in the country? 7. What would you say are the causea of gerHFeeenr shortages of petroleum products in the country? (Tick as many as apply) Occasiona1,repairwork on refineries ( 1 Inadeqydte storage capacity ( 1 ~opding/Diversion ( 1 Smuggl ing ( 1 Closing of depot especially during public holiday ( 1 Industrial Unrest ( 1 Non-availability of tanker vehicles b due to high cost ( ) Conspiracy between tanker drivers and Invoice Clerks at the refineries/depot ( ) Unhealthy relationship between tanker drivers and law enforcement. agents ( 1 Delay in Transportation Others (specify) ...... 8. What are the major problems currently faced 17- your organization in the distribution of pc~troleilnzpr~du ! s in NigeriaY (Tick as mcny as apply) Ca) Bad roads f ) (b) Inadequate storage cagacity/facilitias .1 . (c) Bredkdown of facilities such as the del ivery systern ( 1 Shortage of delivery tankers/wagon Unnecessary harassment by the police Lack of co-operation 'from the tanker owners and marketers (Please state the nature of problem) ...... Closing of .petrol'depots on Sundays and Publf c' holiday ( Limited number of depots and refineries ( ) Others (specify) b ...... IS' there any delay in the service to the customers for petroleum products at the ref iriery or depot'? (ii) If any, state period of delay ...... days ...... weeks ...... months. What are the causes of the delay(s) ? Increase in the nun~erof transw>ters/ Customers to be attended !., ( ) Inadequate service facilities ( Breakdown of facilities such as the I delivery system ( - I Lack of adequate pers~nns~ *( Conspiracy between tanker urivers and officials of PPMC at the.loading point ( ) (f) Irresponsibility on the part of the invoice clerks ( ) How? (Please, specify) ...... (gj Lack of enough space for queuingand turning at the filling point ( ) (h) Others (specify) ...... 11. (i) How many petrol depots in the country do you lift petroleum products from? ...... . - I .? Do you think Nigeria has got enough (i) Petrol depots? (ii) Refineries L 3. If 'no' to (12) above, what number would you recommend in the case of (ii) refineries ( 1 14. Would you like the Federal Government to privatize the refinerie? and pipeline and product marketing company of the NNPC? 15 . Why? ...... Thank you. G. A. EJIM DEPARTMENT OF MARKETING UNIVERSITY OF NIGERIA ENUGU CAMPUS b