Ghosts of past subsidies haunt Nigeria’s petrol discount sale

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Read History Go to My Account Log Out Enhanced by Google Energy Ghosts of past subsidies haunt Nigeria’s petrol discount sale Nigeria’s government has spent three years telling its people that cheap, state-funded petrol is gone for good. A month-long discount

Listen to this article Share Nigeria’s government has spent three years telling its people that cheap, state-funded petrol is gone for good. A month-long discount at the state oil company’s filling stations is now testing how many believe it.

The Nigerian National Petroleum Company began shaving prices on October 1st, billing the cut as a gift for the country’s 66th independence anniversary and later extending it to Oct. 31. For motorists paying through the company’s mobile app, a pump price of N1,405 a litre drops to N1,339.

A week later, Taiwo Oyedele, Minister of Finance, presented the same measure as 30 days of relief for commuters and transporters squeezed by crude above $100 a barrel.

Government officials have repeatedly maintained that the entire scheme is not a ‘subsidy’.

The government said the NNPC Retail is simply forgoing its margin, which Oyedele has put at less than 5 percent of the pump price, and that neither the federal budget nor the Federation Account pays for it.

“This is neither a subsidy nor a price control: it is designed to smooth prices over time rather than suppressing them,” Oyedele said of a related plan to negotiate a N1,350-a-litre ceiling on ex-gantry, or landing, costs.

Under that plan, refiners and importers would absorb costs above the ceiling and recover the shortfall later, when crude or the naira improves.

That last clause is what worries veterans of Nigeria’s downstream sector. Tunji Oyebanji, a former chairman of the Major Energy Marketers Association of Nigeria, said reimbursements under the former subsidy regime stretched from about 30 days to 60, 90 and beyond.

Without clear recovery rules, he warned, the policy could amount to an indirect return to subsidy.

According to him, the experience demonstrated the risks of requiring private operators to finance government-directed price interventions without certainty about when they would recover their money.

“If I borrow money to purchase petrol from Dangote Refinery, for instance, and the government insists that the selling price must not exceed N1,350 per litre even when the price goes up, somebody has to absorb that difference,” Oyebanji said.

George Uche, an energy policy analyst, called it a possible attempt to reintroduce a subsidy without saying so, and urged the government to state its position plainly.

Uche argued that if the government intended to restore subsidy, it should declare its position clearly rather than introduce measures that could test public reaction.

He said the government needed to explain how the proposed arrangement differed from the former subsidy system, particularly regarding who would bear the cost of keeping prices below prevailing market levels.

Billy Gillis-Harry, national president of the Petroleum Products Retail Outlets Owners Association of Nigeria, disagreed. He said the policy didn’t look like a subsidy and described NNPC’s stations as national assets.

Opposition voices have called it a subsidy through the back door. They have also questioned how transparent the scheme is. The Finance Ministry has released a video to clarify it.

The cynicism has a long history behind it.

Nigeria’s fuel subsidy began as an emergency measure. When the 1973 energy crisis lifted crude from about $3 a barrel to about $12, the military government of General Yakubu Gowon moved to shield citizens from the spike.

It kept pump prices low and, in 1975, set up the Petroleum Equalisation Fund to even out distribution costs so that a motorist in a remote town paid roughly what a Lagos driver did. Petrol was 8.45 kobo a litre in 1973, up from 6 kobo, according to a price history compiled by Intelpoint.

The logic made sense at the time. Oil was making the state rich, and cheap fuel was a way to share that. Nobody planned a permanent entitlement. But prices barely moved while oil boomed. They rose to about 15 kobo by 1978 and 20 kobo by 1982, as the same data show. Cheap petrol was becoming something citizens expected.

By the mid-1980s, oil prices had fallen, and the economy had weakened. General Ibrahim Babangida’s government adopted a Structural Adjustment Program in 1986 and raised petrol to 39.5 kobo. Reforms were meant to wean the economy off controlled prices.

Instead, the cycle began that would define the next four decades. Prices were raised, public anger followed, and governments pulled back or let the real value of the price erode through inflation.

In 1993, the interim government of Ernest Shonekan lifted petrol to N5 a litre, a rise of more than 600 percent, per the Intelpoint data. Public outrage was sharp. General Sani Abacha, who seized power later that year, cut the price and then raised it again. In 1998, General Abdulsalami Abubakar set petrol at N25, then eased it to N20.

By then the pattern was clear. Raising prices was politically dangerous. Holding them was fiscally expensive. Governments that tried the first often ended up doing the second.

Under Olusegun Obasanjo, who returned as an elected president in 1999, the price reached N30 in 2000 and deregulation became official policy. The subsidy did not go away. In 2007, President Umaru Yar’Adua cut prices by about 15 percent, to N65, as oil traded around $75, according to the same compilation.

Part of the reason was that Nigeria still imported most of its fuel. Its refineries ran far below capacity, so the country bought refined petrol abroad at global prices and sold it at home for less. The gap was the subsidy. When oil rose, the bill rose with it. The people importing the fuel gained from the arrangement, too, and critics for years accused the system of corruption and fraud.

On January 1, 2012, President Goodluck Jonathan announced the end of the subsidy, and petrol went from N65 to about N140 a litre. Nigeria saw almost two weeks of protests. Unions called strikes and crowds filled streets in Lagos and other cities. Jonathan backed down and set the price at 97 naira. “Subsidy” became what Al Jazeera called a “national buzzword.”

The episode taught politicians a lesson that lasted. Raising the pump price could cost them power.

President Muhammadu Buhari raised petrol to N145 in 2016 from N87, saying the country could not carry the cost. The subsidy never fully disappeared. As oil recovered and the naira weakened, the gap between what the state paid for fuel and what motorists paid widened, and it was funded quietly through NNPC. By 2022 the cost was about $10 billion, more than what many states received from the federation account.

What began as a response to a temporary price shock in 1973 had outlasted nearly every government that touched it. It had become, in the language many Nigerians used, a social contract, and few leaders were willing to be the one to break it.

Tinubu announced ‘subsidy gone’ at his May 29 inaugural ceremony. Petrol jumped to N617 a litre by July 2023, a record at the time, and daily consumption fell to 48.43 million litres in June from 66.9 million litres between January and May, according to data gathered by BusinessDay.

Private companies were licensed to import, and Dangote Refinery later began supplying the market. Pump prices passed N1,000 in 2024 as the currency was devalued.

The reform held. But the pressure on households has not gone away, and now the Middle East conflict is pushing costs up again.

Dipo Oladehinde is a skilled energy analyst with experience across Nigeria’s energy sector alongside relevant know-how about Nigeria’s macro economy. He provides a blend of market intelligence, financial analysis, industry insight, micro and macro-level analysis of a wide range of local and international issues as well as informed technical rudiments for policy-making and private directions.