Nigeria Fuel Subsidy: Government Doubles Down on Denying N620 Billion Per Month Bill

Nigeria fuel subsidy

The Nigerian National Petroleum Company Limited (NNPCL) has admitted that the Federal Government is indirectly subsidising petrol, contradicting its public stance on fuel subsidy removal. Despite government claims, NNPCL continues to sell petrol below the landing cost, creating a financial shortfall managed by federal compensation.

The government has repeatedly claimed it ended fuel subsidy in May 2023, with President Bola Tinubu declaring them “gone forever” during his inaugural speech.

However, reports indicate that the government has quietly resumed subsidies, using NNPCL’s dividends and other fiscal adjustments to bridge the gap between the actual landing cost of petrol and its regulated retail price. The company claimed that the payment being made is the petrol importation shortfalls between it and the federation. This contradiction has led to widespread fuel scarcity and growing public scepticism.

“In the last eight to nine months, NNPCL has not paid anybody a dime as a subsidy; no one has been paid kobo by NNPCL in the name of subsidy. No marketer has received any money from us by way of subsidy.

“What has been happening is that we have been importing PMS, which has been landing at a specific cost price, and the government tells us to sell it at half price. So, the difference between the landing price and that half price is a shortfall,” NNPCL’s Chief Financial Officer, Umar Ajiya, said Monday.

“And the deal is between the Federation and NNPCL to reconcile. Sometimes, they give us money, so there is no money exchanging hands with any marketer in the name of subsidy,” Aliya added.

Landing Cost Vs Actual Price

In April 2024, the CEO of Rainoil Limited, Gabriel Ogbechie, claimed that the federal government had resumed the payment of fuel subsidy following the devaluation of the naira.

He noted that with Nigeria’s daily fuel usage at 40 million litres and the foreign exchange rate at N1,300 as of then, the government’s subsidy per litre of fuel falls between N400 and N500, culminating in a monthly total of approximately N600 billion.

Renowned economist, Bismarck Rewane, in a recent interview, said the price of oil is at $80 a barrel based on the template of the Petroleum Products Marketing Company Limited (PPMC), a subsidiary of the NNPCL. Rewane noted that, going by the oil price, the price of petrol should be around N1,259/litre.

“I think that the price of PMS should be at about N1,259 a litre. At that price, landed diesel will be at about N1,100 or about N1,059,” the economist noted.

“So, if the price of PMS at the pump is N610, and the marginal cost of a landed litre of petrol is actually N1,200, it means that there is at least a N600, more or less, subsidy going on. And who’s going to pay for it?” Rewane wondered.

Economists, however, warn that the government’s continued spending on subsidies could worsen fiscal challenges, limiting the country’s ability to invest in critical infrastructure.

Ongoing Process?

Former Vice President Atiku Abubakar accused the Tinubu administration of secretly disbursing trillions of naira to maintain a semblance of subsidy removal while continuing to fund the price gap between the cost of imported fuel and the price at which it is sold domestically. This has been further complicated by reports from international financial institutions like the World Bank and the IMF, which have hinted at ongoing subsidy payments despite official denials.

Also Read: Fuel Subsidy is Gone, Tinubu Declares as He is Inaugurated as President

Also Read: Nigeria ‘wasted’ N25 trillion on fuel subsidy in 14 years, says economist Eigbe

Also Read: Why Tinubu removed fuel subsidy – Finance minister Wale Edun

Also Read: The Nigeria Oil and Other Subsidy Traps: Is Freedom in View?

The confusion around the government’s position has also been reflected in the varying statements from different officials, some of whom describe subsidy removal as an “ongoing process,” suggesting that the policy is still in flux.

What Experts Are Saying

The Nigerian Economic Summit Group noted that the continuous payment of fuel subsidy will have a negative impact on the nation’s economy.

“Fuel subsidy payment diverts part of the resource for developmental purposes towards consumption. Hence, the resources that should have gone into infrastructure, education, health, and security with positive externalities are going into consumption,” NESG posited.

The group further argued that “the ever-growing fuel subsidy bills” eat deep into government resources, adding that with revenue shortage, fuel subsidy payment means the government will need to borrow to invest in order aspects of governance. This is not sustainable.

Commenting on how the continuous payment of fuel subsidy relates to the incessant and lingering fuel scarcity in Nigeria, NESG noted, “The lower-than-market clearing price causes scarcity. It discourages producers and suppliers from entering the market and is often associated with excess consumption. Besides, the fact that neighbouring economies operate at market-clearing prices encourages the smuggling of subsidised products out of the country. Therefore, fuel subsidy causes scarcity of fuel in the market.”

While the removal of fuel subsidy is a step in the right direction for economic recovery and long-term economic prosperity, the handling of the reform by the government is what will determine whether or not it will yield the intended results.

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Former President Olusegun Obasanjo, while supporting the reform, criticised President Bola Tinubu’s administration for its handling of the fuel subsidy removal, noting that its poor implementation is responsible for the impoverishment of Nigerians.

Also commenting on implementation, NESG stated that “Fuel subsidy reform is critical to the survival of the Nigerian economy, given its current state and the government’s inability to sustain the programme. However, if the removal is poorly planned, the reform may increase prices, worsening people’s welfare and harming businesses and the economy.”

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