- INTRODUCTION
Nigeria
have been subjected to perennial fuel scarcity since the 1970s, hence the
introduction of fuel subsidy reforms by successive governments. This scenario has
led to the further distortions and neglect of the supply chain infrastructure
which have further hindered the smooth delivery of refined petroleum in
Nigeria. Outstanding of all the infrastructural decays, is the moribund status
of the country’s refineries and its connecting pipelines. This have led to huge
transactional costs which culminates to high cost of product and its attendant
product scarcity.
Though the situation has led to the gross
patronage of foreign long range and medium range vessels for the transportation
of the imported refined petroleum, patronage of tank farms, liquid bulk jetties
and Bulk Road Vehicles. These patronages do not seem to abate the consistent
fuel scarcity, notwithstanding the fuel subsidy reforms by successive government
which is primarily for the purposes of making the petrol affordable to the
poorest of the poor in the society. The perennial fuel scarcity scenario has
elicited public outcry on the authenticity of the subsidy claims/payment. It
has also questioned the efficacy of the fuel subsidy reforms in solving the
fuel scarcity challenge.
This paper therefore, is billed to evaluate
the relationship between fuel subsidy reforms proxies (such as annual subsidy
payment, Official pump price, number of vendors, daily swap import) and supply
chain performance of marine terminal operations using Cargo Throughput, Ship
Traffic, Bulk Road Vehicle traffic as performance indicators. The study will
attempt to appraise the cargo throughput, ship traffic and Bulk Road Vehicle
Traffic of 6 selected (publicly-managed and privately-managed) marine terminals
in Nigeria subject to fuel subsidy reforms as implemented by the
administrations of former presidents Goodluck Jonathan and Muhammadu Buhari.
The paper is arranged into 4
sections; section 1 is the introduction, section 2 is the literature review,
section 3 is the methodology and section 4 is the results, discussion and
conclusion.
- LITERATURE
REVIEW
According to Olanrewaju (2021), fuel
subsidy reform is a process to lessen the financial burden or cost of fuel for
certain demography of the country. Rentschler & Bazilian (2017) viewed the concept of fuel subsidy reforms as the
fiscal approaches that reduces the price of petroleum products below their
supply cost (international market price) thereby making the petroleum more
affordable to end users (IMF 2022). Omotosho (2019),
saw it as a system geared towards the protection of the low-income earner
households and promoting domestic enterprise of certain goods and services.
Rugare and Nyasha (2021) studied the impact
of Zimbabwean government policy interventions on the survival strategies being
implemented by companies in the countries petroleum sector. Sayne (2017) espoused on securing fair value from
natural Nigeria’s DSDP contract which gave details of the fuel subsidy reforms
of former president M. Buhari’s administration. Sayne, Gillies & Katsouris
(2015), In their earlier studies on fuel subsidy
reforms dealt also on the inside NNPC Oil Sales methods based on the fuel
subsidy reform in Nigeria. Most of these studies could not relate the effects
of the reforms to marine terminal operations and their performance
indicators.
The execution of these reforms
was for the purposes of providing consistent fuel to the low-income earners.
Cargo throughput, ship traffic and BRV Traffic at the marine terminals remain
veritable performance indicators that will show how much of the subsidized
product is supplied and distributed to Nigerians within the period under
review.
Theophilus (2017), posits that
cargo throughput is one of the determinant factors applied in the long-term
forecasting of financial performance of terminal operators and ports authority.
The performance rating of the marine terminal is also a function of the volume
of Ship traffic and BRV traffic at the terminals for evacuation of the imported
petrol. Hence, its application in
assessing these supply and distribution nodes that could ascertain fuel availability.
Chukwuebuka Godfrey Osondu-Okoro
et al (2022), asserts that the ship traffic and cargo throughput in any given
port can be confirmed as proves to indicate the shippers, importers, and
government demand for port services in that particular port within that
particular period or season.
Therefore, the correlation of
fuel subsidy reforms of government and the performance of the marine terminals
is not farfetched given that the supply and distribution of the subsidized
petrol is legitimately anchored by the ports as the main nexus of the system in
Nigeria where pipeline and inhouse refineries are in comatose. However, the
purpose of this study is to empirically justify or decline if there exists any
form of relationship between the fuel subsidy reform proxies and the supply
chain performance indicators of marine terminals or ports in Nigeria.
Theoretical Framework
This study is approached from the context of Contingency theory otherwise referred to as
situational theory or “it all depends” theory or “if” and “then” theory.
Contingency theory is considered as a leading branch of management thought made
up of an integration of the principles of different schools of thought such as
the classical, behavioral and systemic approaches, contingent in tackling
situations. Contingency theory is of the opinion that under different
conditions different solutions can be effective (Omoluabi, E.T. 2016). It is
pragmatic in addressing solutions to problems after careful analysis of the
problem. It adapts to the principles of continuous improvement as it provides
insights into organizations’ adaptability to both internal and external
environments.
In other words, it is the “if” and “then” approach to situation or
organizational management. The “if” represents the independent variables and
the” then” represents the dependent variables.
For instance, in this study, if fuel subsidy reforms are adjusted by
government by way of product price control, daily quantity supplied, number of
product suppliers, and amount budgeted and paid as subsidy, then records of the
ports on cargo throughput, tanker vessel traffic and BRV traffic will respond
in a certain way to show their effects and relationships. Given that fuel
supply and distribution in Nigeria is anchored mainly and legitimately in
Nigeria through the ports. Hence, the justification or decline of the
relationship or association of fuel subsidy reforms and marine terminal
performance will avert time and resource wastages but foster system
reengineering through scientific continuous adjustments which will further lead
to the desired objective or goal of government if policies are approached
situationally or contingently.
Contingency theory was developed through the development of other
concepts of Tayler, Fayol and Weber.
Contingency theory was first mentioned in the works of Lawrence and
Lersch in 1967, in the context of organizational structure, but was made
popular by Fiedlier, Hersey and Blanchard.
Empirical review
Researches
on Fuel subsidy reforms are vast and have also covered different class of
countries while undergoing different approaches by these countries. The
peculiarity of these countries has also led to the unique and common grounds in
variable application in achieving the objectives of the countries’ subsidy
reforms.
In the study conducted by Omotosho (2019), he mentioned official
pump price control by government in relation to the expected open market price-
reference price as key variables in fuel subsidy reforms in Nigeria. Nwachukwu and Chike (2011) also buttressed
this point by asserting that government control of petroleum pricing stands as
a variable for fuel reforms. In a research work by Ochuonu (2013), he disclosed that
petroleum consumption quantity, domestic pump price, amount spent on petroleum
subsidy payments and GDP were important variables in the computation of fuel
subsidies.
In the works of Opeyemi
et al (2015) which examined the impact of Fuel Subsidy Reforms on environmental
quality in Nigeria, using the 2 step cointegration procedure techniques (the
Johansen and the Engle-Granger). The study estimated 3 scenarios of the subsidy
payment, case of effective subsidy and the case of no subsidy payments. The
research in testing the hypotheses on impact of fuel subsidy on environment,
applied the model specification that included variables such as emissions from
liquid fuel consumption which is proxied for measurement for environmental
damage. It discovered that case scenario one of subsidy payment and case
scenario three of no subsidy payments do not significantly influence
environmental quality. In otherwords, the study claimed that subsidy payment
does not enhance quantity of fuel consumption in Nigeria.
OECD also carried out numerous researches on
countries that had embarked on fuel subsidy reforms, and the key variables
monitored and evaluated in the research especially in their report on Ukraine
were variables such as budgetary allocation and transfers, government revenue
foregone (or tax expenditure- tax breaks) induced transfers in the form of
cross subsidies- regulated price for the poor households, residential
consumers, or below market tariffs and risk transfers to government- financial
supports to government energy sector-renewable or alternative energy sources,
taxation, and energy pricing (Nelly and Krzysztof (2023),OECD (2023)
Globally, as disclosed in the
reviewed literature on fuel subsidies using price gap approach, reference
price, consumed quantity and end users’ price- Official pump price have always
remained constant variables in executing subsidy reforms in the petroleum
industry.
(Coady et al. 2010; Kosmo 1987).
Hence, the basic calculation of subsidy for a
product is: Subsidy = {(Absolute Supply Cost or reference Price minus Official
Pump price or End-user Price) multiplied by Quantity Consumed}. The reference
price is actually the international oil price.
In the application of price gap
approach in estimating consumption subsidies,
For net importers, “reference
prices are based on the import parity price: the price of a product at the
nearest international hub, adjusted for quality differences, if necessary, plus
the cost of freight and insurance to the net importer, plus the cost of
internal distribution and marketing and any value-added tax (VAT). VAT was
added to the reference price where the tax is levied on final energy sales, as
a proxy for the tax on economic activities levied across an economy. Other
taxes, including excise duties, are not included in the reference price.” (Coady et al. 2010).
For example, the standard
variables in fuel subsidy template as reported by PPPRA 2020 for Nigeria, a net
importer of gasoline, consists of FOB Rotterdam Barge, Freight Rate = Cost of
petrol plus freight (offshore Nigeria), Lightering
Expenses, Insurance Cost, NPA Cost, NIMASA Cost, Jetty
Throughput Charges, Storage Charge, Financing/Cost of Fund, Landing
Cost at terminal, Wholesale Margin and the
Distribution Margin components which are Transporters
Allowance (NTA), Retailer Margin, Dealer margin, Bridging Fund, Marine Transport Average (MTA), NMDPRA Administrative Charge (PPPRA report 2020).
The relationship of the fuel subsidy reform
variables with cargo throughput, ship calls, and BRV Calls cannot be
far-fetched, as it is also identified as one of the indicators as captured by
PPPRA subsidy legends (i.e. jetty throughput charges, storage charges, NPA
Cost, Transport allowance and bridging funds) amongst other charges.
Based on the reviewed literature, there seems
to be an empirical need for studies on fuel subsidy reforms and its
relationship with cargo throughput, ship calls, and BRV Calls and other marine
terminal performance indicators as adapted in Nigeria. The revelation will
further justify an urgent shift of researches on the impact of fuel subsidy
reforms on the supply chain performance of marine terminal operations in
Nigeria. This endeavor will empirically support decisions as taken by policy
makers in Nigeria concerning national challenge like fuel scarcity and price
hike that has elicited international interest.
- METHODOLOGY
Data and Methods
The research adopted an explanatory research design method.
Secondary panel data were gotten from Nigerian National Petroleum Corporation
(NNPC) on fuel subsidy reform proxies such as official pump price, daily swap
import, number of supply vendors, annual subsidy payments while Nigerian Ports
Authority (NPA), Nigerian Midstream and Downstream Petroleum Regulatory Agency
(NMDPRA) and terminal managers provided
statistical records on cargo throughput, ship calls, and BRV Calls of the 6 selected marine terminals codenamed Terminal=A,
Terminal=B, Terminal=C, Terminal=D, Terminal=E and Terminal=F.
The dataset for each of the
marine terminals’ performance indicators and fuel subsidy reforms proxies for
years 2012 to 2020 are represented. Correlation analysis and Stochastic
frontier regression model estimation was applied in the assessment of the statistical
dataset to confirm the relationship between fuel subsidy reforms and the cargo throughput, ship
calls, and BRV Calls in 6 selected marine terminals
in Nigeria.
Correlation analysis is a
statistical tool used in assessing the degree of association between two
variables. In this study, Pearsons r formular was
employed to execute the correlation test. The result of the relationship or
association of 2 variables is expressed in the value of the coefficient of the
correlation test, symbolized as + or -1. Plus 1 (positive
relationship) or minus 1 (negative relationship) values signify perfect degree of
relationship or association exists between the comparing variables, while 0
indicate no correlation. If the correlation coefficient tends toward 0, then it
indicates that the relationship between the variables is weak.
Pearson
coefficient of correlation is expressed as:
r
= N∑xy − ∑(x)(y) ∕ √ [𝑁
∑𝑥 2 − ∑ (𝑥
2)] [[𝑁 ∑𝑦 2 −∑ (𝑦
2)]
Where,
r
= Pearson r correlation coefficient.
N
= number of observations = 9.
Σxy
= sum of the products of paired scores of Official Pump Price, Number of Supply
Vendors, Daily Swap Import, Annual Subsidy Payment and Cargo Throughput, Ship Traffic,
BRV Traffic of the port.
Σy
= sum of y scores of each Cargo Throughput, Ship Traffic, BRV Traffic of each marine
terminal under investigation.
Σx2=
sum of squared x scores of Official Pump Price, Number of Supply Vendors, Daily
Swap Import, Annual Subsidy Payment of each year under investigation.
Σy2=
sum of squared y scores of cargo throughput, ship traffic, BRV Traffic.
The stochastic frontier model was further applied as
a second test. The
stochastic frontier model is a type of efficiency analysis model developed by
Aigner, Lovell and Schmidt (1977), given as
y = β’X + v-u, u =/U/
where
y is the observed outcome
β’X + v is the optional frontier goal
β’X is the deterministic part of the frontier
u is the amount by which the observed individual
fails, it is called the inefficiency.
- RESULTS, CONCLUSIONS AND RECOMMENDATIONS
