Without the subsidy, Nigeria could conserve more than 15 million tonnes of CO2听each year.
鈥淭he fuel subsidy is gone,鈥� said Nigeria President Bola Tinubu, in his听听on 29 May 2023. 鈥淭he subsidy can no longer justify its ever-increasing costs in the wake of drying resources. We shall instead rechannel the funds into better investment in public infrastructure, education, health care and jobs that will materially improve the lives of millions.鈥�
The president鈥檚 pronouncement prompted a spike in the pump price of petrol from about听鈧�780 a gallon (approximately $1) to听鈧�2160 a gallon ($2.80), driving up the overall cost of living in the country.听
Organized labour threatened a nationwide strike if the government failed to reverse itself as former president Goodluck Jonathan did in 2012, when he tried to end subsidies. But after negotiations with the Tinubu administration, the unions reneged on their threat.
A spotlight on subsidies
Before President Tinubu鈥檚 inauguration, the Nigerian government spent听鈧�400 billion (about $500 million) monthly to subsidize petroleum imports, according to Mele Kyari, chief executive officer of the Nigerian National Petroleum Company Limited (NNPCL), licensed to operate in Nigeria鈥檚 oil industry.
The subsidy was the difference between the projected open market price and the pump price. To make up for the market shortfall, the government issued it as a direct or indirect payment to individuals or companies that imported refined products.听
In 2022, Nigeria鈥檚 House of Representatives set up a panel to investigate its petroleum subsidy regime from 2017鈥�2022. The government has yet to publish the panel鈥檚 findings, submitted in June 2023, but it has maintained that the subsidies benefitted a few companies.听
According to Femi Falana, a Senior Advocate of Nigeria and one of the country鈥檚 renowned constitutional and human rights lawyers, the subsidies diverted huge sums of public funds to private pockets.
鈥淭his is one decision we must bear to save our country from going under and take our resources away from the stranglehold of a few unpatriotic elements,鈥� President Tinubu reiterated in his Democracy Day address on 12 June.
鈥淭his [subsidy removal] is one decision we must bear to save our country from going under and take our resources away from the stranglehold of a few unpatriotic elements.鈥澨�
Mr. Tinubu is confident that ending subsidy payments will free up resources for massive infrastructure investments in transportation, energy and other sectors.
Unintended consequences
By the early 1990s, Nigeria鈥檚 four state-owned but independently operated oil refineries could not keep up with demand. The听听that its old refineries could not handle and then import the refined petroleum at a huge cost, which the government subsidized.听
In 2000, the government approved about 20 licenses to private sector players for building new refineries in the country, yet they built none.听
Why? Economists believe that those licensees chose not to build because the subsidies鈥攊n effect, price controls鈥攎ight have prevented them from recouping their investment. As a case in point, the government鈥檚 own revenues dwindled under record-low oil prices.
In recent years, the government has had to rely on the NNPC to foot the subsidy payments, Mr.听Kyari stated in an interview. As a result, the NNPC cannot fulfill its mandated contributions to the federation account, which serves as a shared revenue pool distributed among Nigeria's federal, state and local levels of government.
Experts also argue that subsidy payments have fuelled excessive and less efficient energy consumption and growing budget deficits.
Sustainable advantages
The present administration also highlighted other advantages of ending the subsidy, such as decreases in carbon dioxide (CO2) emissions.
In early August, Vice President Kashim Shettima remarked that without the subsidy, Nigeria could conserve more than 15 million tonnes of CO2听each year, helping the nation to attain its听听to the Paris Agreement.
,听the National Council on Climate Change鈥檚听initial analysis shows a potential 30 per cent decrease in everyday fuel usage, equal to 20 million litres or 42,800 tonnes of CO2听emissions.听
Many commend the government for framing infrastructure investment in terms of听.
