Supporting Government Intervention in Nigeria's Petroleum Pricing

This essay examines the controversial issue of petroleum product prices in Nigeria, focusing on the government's role in price discovery. It discusses the historical context of oil subsidies, the impact of their potential removal, and the importance of government intervention through subsidies, incentives, and price controls. The essay argues that continued government support is crucial for maintaining affordable prices for consumers and fostering economic growth. It also explores the use of incentives, purchasing power regulation, and price controls as mechanisms for ensuring fair pricing and preventing shortages. The essay concludes by recommending that the Nigerian government continue its intervention efforts to stabilize petroleum prices and promote economic development.

<SUBJECT CODE><Subject Name><Task Name><Firstname><Lastname> 1
SUPPORTING GOVERNMENT IN THE INTERVENTION OF PRICE DISCOVERY OF
PETROLEUM PRODUCTS IN NIGERIA
Student’s Name
Institution Affiliation
Instructor
Course
Date

<SUBJECT CODE><Subject Name><Task Name><Firstname><Lastname> 2
There has been controversy and contention with regard to the petroleum products prices
in the nation of Nigeria. Meanwhile, the Nigerian economy which for many years that have past
used to depend more on the agricultural sector has began now to depend on oil production sector
which according to report given by the International Monetary Fund (IMF), the oil sector for
export in Nigeria earning accounts for over 95 percent in total and in the government sector
accounts for 65 percent (Adewuyi, 2016, p-93). Over the past years, the government of Nigeria
has opted to remove the subsidies that it offers to the oil sector and these subsidies removal has
remained a contentious issue in the nation at large. Over the end of the year 2010 and early 2011,
the government of Nigeria made attempts to make the prices of oil products less strict, which
made an implication that the government would not offer subsidies to importers of refined oil
products any longer. Previous the cost of refined oil products importation was being shared
between the importers and the government which made the cost of importation low and as a
result made the cost of the oil products to the consumer low and affordable to the common
citizen. Thus the people that benefited were the Nigerian consumers and Nigerian economy at
large. As at now, the cost of oil products in Nigeria per liter ranges between N65 for PMS that is
used in their vehicles and the powering of generators but on the other hand, the cost incurred in
the importation of the petrol to their petrol stations is around N90 per litre. The consumer cost is
reduced because of government subsidies (Bollen, O'Neill, and Whaley, 2017, p.431). The
purpose of the government to provide these subsidies to the importers is to make them reduce
their product prices for the consumers and also gain some profit from their businesses. Currently,
there is a reform package in Nigerian National Assembly known as the Petroleum Industry Bill
(PIB) aiming at stopping of the payment of oil subsidies to oil importers and stop regulating the
prices of oil in the country. Due to this intention of the government to remove oil products

<SUBJECT CODE><Subject Name><Task Name><Firstname><Lastname> 3
subsidies, the aim of this discussion is aiming at urging the government to continue in the
support for the intervention of price discovery of petroleum products in Nigeria.
One of the major mechanisms that the government has been using and should continue
using in its process of discovering product prices is the use of subsidies. Subsidies are
government support in form of incentives that are given to businesses, institutions or individuals
with the aim of economic and social promotion of the business. The government of Nigeria
began offering subsidies way back during the rule by the military and since that time has
remained one of the acts of the government that have remained sustained for long. The
government of Nigeria has never been in support of any other industry for such a long time and
remained competitive globally like the oil industry (Hu, Pan, and Wang, 2017, p.399). Although
it is a burden to the government of Nigeria in payment of subsidies to the importer of oil,
provision of these subsidies are of great help to the people of Nigeria because the burden of
paying for the cost of that oil is not transferred to the consumers. This advantageous compared to
other West African countries where the consumers carry all the burden of oil costs. Considering
the concept of demand and supply, we find that it is among the causes of change in the prices of
products and the exchange rates (Ajibola, Enilolobo, and Theodore, 2017, p.77). When the prices
of commodities are low, demand for goods and services is high and more consumers tend to
make a lot of purchases because they are cheap. (Bordonaro, Molnár and Samdal, 2017, p.164).
Considering the application of this theory of economy, continuing with subsidy provision will
create a good working and living environment for all the Nigerian consumers and therefore the
government should look into continued subsidy provision for the better economic growth of the
Nigeria economy.

<SUBJECT CODE><Subject Name><Task Name><Firstname><Lastname> 4
We have incentives which are economic theory concepts that can be used by the Nation
of Nigeria in product price discovery. Incentives motivate oil companies to behave in a certain
way. The incentive provides a company or a firm with motivation to pursue its preferences. A
preference, on the other hand, refers to what one need, want or desires (Clark and Phil, 2016,
p.76). Now in this research paper, the government of Nigeria should also implement the use of
incentives to motivate petroleum products producing companies in their productions process.
Some of the incentives that can be given to these companies are like tax reduction (Naser, 2016,
p.75). Reduced taxation on their produced products is advantageous because it means that they
will sell their products at lower prices. Reduced prices on petroleum products because of
incentives from the government create high demand of the same therefore increase in sales. The
purchasing power has also been used in the process of discovering the prices of petroleum
products in Nigeria. This is an economic concept that is used to refer to the financial ability of a
currency to buy goods and services. For instance, having a dollar this year, the dollar will remain
to be one dollar years to come, but the value of the dollar might appreciate or depreciate (Tunde
and James, 2018, p.19). This means that the dollar might become worth less than it was before or
worth more in the years to come. If it becomes worthless, you are required to add more money to
purchase a commodity you were buying with the same dollar previously. The concept of
purchasing power has been used during the purchasing of petroleum products in Nigeria.
Sometime due to inflation, the value of Nigerian currency might lose value, and therefore this
affects the purchasing power of this currency. The government can use the purchasing power of
the currency in the discovery of the petroleum product and this might to reduced prices.
Proper pricing makes sure that producers receive enough revenue allowing them to adjust
to the market climate and limit the possibility of a shortage. This is important more so in a

<SUBJECT CODE><Subject Name><Task Name><Firstname><Lastname> 5
market where the fluctuations of commodities price are frequent. Price control also helps during
the times of shortages that citizens are not charged high prices for products (Ezeoha, we,
Onyeke, and Uche, 2016, p.152). price control helps in regulating the process of basic consumer
commodities to make them easily accessible to every common citizen in the country. Price
discovery for a product sometimes might cause a shortage if not well controlled. Shortages occur
when the demand for the products id high and the ability of the producer to supply these products
is low. This is mostly caused by reduced prices leading to increased demand by the consumers.
Also during price discovery, when a shortage arises may result in discrimination. This is where
commodities are sold to consumers based on regional differences and also depending on
different groups of people (Narayan and Sharma, 2018, p.122). The government of Nigeria
should use price controls for petroleum products to make sure that the correct prices are
discovered and to avoid any occurrence of inflations in the country.
It is notable that there are many ways that the government of Nigeria can put more efforts
in intervening and offering of subsidies, incentives and controlling the purchasing power of
Nigeria’s currency to petroleum products produced in the process of discovering petroleum
products prices (Bordonado, Molnár and Samdal, 2017, p.164). The act of the government
helping producers and suppliers with incentives, the overall prices of their products and services
will be much reduced. On the other side of the consumer, government subsidies on the petroleum
products will be helpful to the consumer because the consumer will now be able to acquire the
products at a lower price. Subsidies by the government may have side effects too. This is because
they will lead to lower supply because of the increased demand by the petroleum products
consumers. Government intervention in the price discovery has various advantages. Price
discovery cans ensure that the necessary goods and services are readily available and affordable

<SUBJECT CODE><Subject Name><Task Name><Firstname><Lastname> 6
to most citizens. This is because most of the production industries depend on petroleum products
to produce their goods and services (Potori, and Stark, 2015, p.126). Therefore, controlling the
prices of petroleum products will make them the produce at lower prices friendly to the
consumers.
In conclusion, the issue of petroleum products pricing has dominated the public discourse
and policy of Nigeria for decades. In this research, it has been noted that there are many ways
that the government of Nigeria should put into implementation in discovering the prices of
products in Nigeria. The government should apply the use of subsidies to reduce the cost of
production which will as well as lower consumer purchasing prices (Bollen, O'Neill, and
Whaley, 2017, p.431). It should also make use of incentives for instance tax reduction for
motivating the companies to continue producing petroleum products at a lower price. The
government should also put efforts in controlling inflation in the country which as well maintains
the value of the currency high. It is all clear that there are some efforts made to ensure that
petroleum prices are stabilized and made affordable for the most Nigerian citizens. With all this
information at hand, the recommendations that I make on this research is that the Nigerian
government should continue on intervening for the discovery of affordable petroleum prices in
Nigeria for it is important for the growth of the Nigerian economy (Ezeoha, Igwe, Onyeke and
Uche, 2016, p.152).

<SUBJECT CODE><Subject Name><Task Name><Firstname><Lastname> 7
References
Adewuyi, A.O., 2016. Determinants of import demand for non-renewable energy (petroleum)
products: Empirical evidence from Nigeria. Energy Policy, 95, pp.73-93.
Ajibola, A.A., Enilolobo, O.S. and Theodore, N.I., 2017. Impact of Oil Revenue and Exchange
Rate Fluctuation on Economic Growth in Nigeria (1981-2015). Journal of Management &
Administration, 2017(2), pp.77-104.
Bollen, N.P., O'Neill, M.J. and Whaley, R.E., 2017. Tail wags dog: Intraday price discovery in
VIX markets. Journal of Futures Markets, 37(5), pp.431-451.
Bordonaro, C., Molnár, P. and Samdal, S.R., 2017. VIX exchange-traded products: Price
discovery, hedging, and trading strategy. Journal of Futures Markets, 37(2), pp.164-183.
Clark, E.V., and Phil, D., 2016. The Politics of Oil in Nigeria: Transparency and Accountability
for Sustainable Development in the Niger Delta. American International Journal of
Contemporary Research, 6(4), pp.76-82.
Daniel, P., Veung, C. and Watson, A., 2016. 11 Fiscal schemes for joint development of
petroleum in disputed areas. International Taxation and the Extractive Industries: Resources
without Borders, p.264.
Ezeoha, A., Igwe, A., Onyeke, C. and Uche, C., 2016. Relevance lost? The petroleum
equalization fund in Nigeria. Energy for Sustainable Development, 31, pp.152-162.
Hu, G.X., Pan, J., and Wang, J., 2017. Early peek advantage? Efficient price discovery with
tiered information disclosure. Journal of Financial Economics, 126(2), pp.399-421.

<SUBJECT CODE><Subject Name><Task Name><Firstname><Lastname> 8
Naser, H., 2016. Estimating and forecasting the real prices of crude oil: A data-rich model using
a dynamic model averaging (DMA) approach. Energy Economics, 56, pp.75-87.
Narayan, P.K. and Sharma, S.S., 2018. An analysis of time-varying commodity market price
discovery. International Review of Financial Analysis, 57, pp.122-133.
Potori, N. and Stark, A., 2015. Do crude oil prices influence new crop sunflower seed futures
price discovery in Hungary?. Studies in Agricultural Economics, 117(3), pp.126-130.
Tunde, E.Z. and James, R.O., 2018. Hike in Pump Price: Major Doom to Nigerian
Forest. Journal of Energy, Environmental & Chemical Engineering, 3(2), p.19.