Nigerians bear brunt of FG’s petrol subsidy politics

Nkechi Okafor, a 32-year-old small business owner in Nigeria’s commercial capital, drove to a NIPCO petrol station on Monday.

The queue stretched 20 metres from the petrol station, forcing her to spend two hours before getting petrol.

“Every day, it’s the same story,” Nkechi said, with a weary voice.

“I spend more time queuing for fuel than I do running my business. It’s affecting everything—our work, our families, our lives.”

For years, Nigeria’s political leaders and economists have debated whether to jettison the petrol subsidy or retain it. While the government said petroleum subsidy was gone since May 29, 2023, the price has remained fixed up till today, suggesting that market forces still do not determine the price.

The uncertainty has sparked a crisis that affects millions of ordinary Nigerians like Nkechi. Today, Nigerians are paying more for fuel, spending as high as N1, 300 per litre in various parts of Nigeria.

Also, petrol scarcity is worsening due to uncertainties created by the government indecision. No Nigerian is sure of getting petrol at any fuel station due to lack of clarity in the market.

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While policymakers dither, the average citizen is left grappling with erratic fuel supplies and soaring prices.

In the bustling city of Oshodi, Emmanuel Bello, a 45-year-old father of three, echoed the sentiment. “The fuel shortages are just one part of the problem,” he said. “The real issue is the cost of living. Everything is going up—food, transportation, even school fees. It’s getting harder to make ends meet.”

The ripple effects of the subsidy dilemma are visible across Nigeria.

“Economic reform is taking a major toll on the northern states where the poverty is highest,” Bismarck Rewane, chief executive officer, Financial Derivaties Company Limited, said in a monthly breakfast meeting at the Lagos Business School.

He noted that the increase in the pump price of petrol by 50.1 percent, from N568 to N855 per litre, would take N5 trillion from Nigerian consumers to the government and heighten energy poverty.

“The macroeconomic and welfare impact of the new price of petrol, now adjusted to N855 per litre from N568 per litre, implies that N5 trillion is withdrawn from consumers and transferred to government,” he said.

According to him, this can lead to re-inflation in September as logistics cost escalates and consumer demand suffers a decline due to income squeeze, while “energy poverty could quicken to 76.3 per cent (168 million) in 2025 from 71 per cent (161 million) in 2023.”

Experts say the indecision over petrol subsidy at the pump is a stark reflection of the larger crisis affecting millions of Nigerians.

“We’re caught in a never-ending cycle of waiting,” Toyin Akindele, economist at Sofidam Capital, said. “One day subsidy goes, the next it’s back, and nobody really knows what to expect.”

Era of ‘Shortfall’

President Tinubu had, in his inaugural address on 29 May 2023, announced the removal of the subsidy to lift a major financial burden off the back of the government.

The announcement sparked the increase in fuel price from N197 to between N480 and N570, which immediately triggered a rise in transportation fares and prices of goods and services in the country.

In July 2023, the petrol pump price was subsequently reviewed upward to N617/litre at various outlets of the Nigerian National Petroleum Company Limited (NNPC Ltd).

Umar Ajiya, chief financial officer (CFO) of the NNPC, said in August that the national oil company was only bearing what he called the ‘shortfall’ and not subsidy.

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The official pump price of petrol then was about N600/litre but the landing cost was around N1,200 — and Ajiya confirmed to Bloomberg that it cost the NNPC N7.8 trillion to make up for the ‘shortfall’ in the first seven months of the year.

In an official communication between NNPC and President Bola Tinubu seen by BusinessDay, the word ‘subsidy’ was used extensively to explain the ‘shortfall.’

BusienssDay had reported that President Tinubu approved a request by NNPC to utilise the 2023 final dividends due the federation to pay for the subsidy.

Era of ‘Under-recovery’

In a 2011 interview granted to a local television station, Muhammadu Buhari, who was seeking election as president, lampooned fuel subsidy payments, calling it a fraud.

In his campaign promises, Buhari assured Nigerians there would no longer be payments of subsidy.

In December 2015, Buhari’s government began its move against subsidy by scrapping the Petroleum Support Fund and declaring an end to the era of subsidy payment. The president and Ibe Kachikwu, the then minister of state for petroleum, had assured Nigerians that even with the removal of the subsidy, the price of petrol would remain as low as N85 per litre.

Kachikwu said the government could no longer pay the subsidy due to the fraud tainting the scheme, noting that the government would channel its resources instead to getting the refineries up, and saving the trillions of naira past governments squandered on fuel subsidy payments.

However, Buhari took the nation by surprise a year later when his administration suddenly increased the price of petrol to N145 per litre in 2016, with subsidy payment still in place. The government persuaded Nigerians to accept the increase.

When fuel queues resurfaced during the Christmas and New Year celebration of 2018, the NNPC said the landing cost of petrol was for months about N171.40 per litre, which was N26.40 above the official pump price of N145.

At the time, the NNPC and the fuel marketers traded blame on who was responsible for the scarcity, and it resulted in rising retail prices that averaged about N200 per litre in most states, except Abuja and Lagos where filling stations in the metropolis sold for N145.

In December 2018, it became evident that the government was quietly continuing with the subsidy regime and earmarked N305 billion for petrol subsidy in the 2019 budget proposal. But the administration did not admit it was paying for subsidy and introduced a new tagline for subsidy, calling it ‘under-recovery’.