Fuel subsidy presents Nigeria tough choice of burning N6trillion in 2023

The Nigerian government has the difficult prospect of burning over N6trillion on petrol subsidies next year amidst competing needs or removing subsidies and facing the ire of labour and civil society groups while saving the economy.

A litre of petrol sold around Nigeria between N170 – N200 per litre across filling stations would double with the removal of subsidy at the government’s official exchange rate, marketers say.

“Going by the Central Bank of Nigeria’s official rate of N430 to a dollar, the pump price of petrol will stand at N450 per litre,” said Mike Osatuyi, National Operations Controller, Independent Petroleum Marketers Association of Nigeria (IPMAN).

This is to the extent that the CBN is able to provide foreign exchange to marketers to import the commodity. If marketers source their own forex, petrol prices could be higher than N600 per litre according to the pricing template developed by the government.

Labour unions have argued that the removal of subsidies will raise the cost of the living insisting the government must fix its refineries before there can be a discussion on subsidy removal.

These agitators may be in for a rude shock after Dangote Refinery come on stream in 2023 and Nigeria’s refineries become operational again and it becomes impracticable to sell a litre of petrol below N500.

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This possibility is real considering that the NNPC plans to outsource the operations and management of the country’s four refineries after fixing them.

Mele Kyari, CEO, of NNPC Ltd, said outsourcing the running of the refineries was a condition by the lenders financing the repairs. He said the NNPC already has contracts in place for their management after the refineries become operational.

“We will get the refineries back and run it as a business, we borrowed money to fix it and repayment for loans obtained is tied against the productivity of the refineries,” said Kyari.

The Dangote Refinery is a private enterprise with the NNPC holding 20 percent stake on behalf of the government. The NNPC says it would supply half of the crude required by the plant and if this would be sold at market prices making it impractical to continue the subsidies.

A cash-strapped Federal Government cannot afford to give its own share of the crude from joint venture operations free to Dangote Refinery.

This is why marketers under the aegis of the Major Oil Marketers Association of Nigeria (MOMAN) say the Federal Government has no other option than to end the subsidy in light of current economic realities.

In 2015, the oil-funded revenue accounts of Nigeria stood at $2.1 billion. Seven years later, Nigeria’s Excess Crude Account (ECA) dropped drastically on the back of the petrol subsidy.

On July 26, 2022, the Office of the Accountant General of the Federation revealed that the account had dropped dramatically from $35.7 million in June 2022 to the current $376,655.

“It is extremely difficult but it is something that must be done as there are no more viable options,” said Olumide Adeosun, Chairman, MOMAN.

The current strategy of kicking the can forward to become a problem for the next government will only serve to worsen the country’s economy, experts say.