Nigeria Burns N10trn on Petrol Subsidy

Against the backdrop of the bad state of Nigeria’s refineries, the country may have spent about N10 trillion in the provision of pump price subsidy on imported petroleum products from 2006 to 2018.

A research report by BudgIT, a public finance focused Non-Governmental Organisation, NGO, said this amount came from the price shocks in the international energy market as well as the exchange volatility.

The report also indicated that the subsidy regime has opened Nigeria’s public finance to huge corruption and illegal exportation of petroleum products to neighbouring countries.

The report, entitled Nigeria’s Petrol Subsidy Regime: Dilemma of the World’s Most Populous Black Nation” stated that “Nigeria currently imports an average of 91 percent of its daily petrol needs, thus disproportionately exposing local petrol prices to price shocks from international factors of production and exchange rate volatility.

“There is a near perfectly inverse relationship between the fall in the value of Naira and the rise in the cost of imported petrol. That is, when next the Naira is devalued, Nigeria’s subsidy bill can be expected to jump.

“The continuation of petrol price regulation perpetuates safety nests for exceptional forms of corruption within the country’s subsidy regime. Import subsidy creates petrol price arbitrage— the differential between the regulated price in Nigeria and the high petrol prices in neighbouring countries— which is big enough to incentivise smuggling of subsidised products to neighbouring border towns.”

On the implication of the development, the report stated that: “BudgIT notes with dismay that fuel subsidy deprive Nigeria of funds needed for critical socio-economic development as it discourages investors, who generally prefer a deregulated industry, from investing in the downstream sector especially in the area of refinery construction and operation.

“For instance, the 10 trillion consumed by the subsidy regime is sufficient to construct 27,000MW of electricity or build about 2,400 units of 1000-bed standard hospitals across 774 local government areas of Nigeria, found our research.

“We equally note that the Nigerian masses worship low oil prices. More so, the political class fears that increases in petrol price (and in the cost of living by extension), occasioned by a deregulated price regime, could become a flashpoint for mass uprisings and political instability. Nonetheless, we can never shy away from the opportunity cost of the corrupt subsidy regime.”