January, 10,2023

Key highlights

• Many Nigerians across the country are paying more than the official prices per litre of fuel.
• This has raised concerns as to whether the federal government is still subsidising the commodity.
• Meanwhile, some experts have called for the total removal of fuel subsidy in Nigeria.
• However, removing fuel subsidy would have both negative and positive implications.

It appears Nigeria’s fuel subsidy regime is collapsing as premium motor spirit (PMS) now sells far above the regulated prices across the country.

For a long time, Nigerians have been divided over fuel subsidy payments made by the government to ease the cost burden on consumers around the country. 

Successive governments have reviewed possible ways to stop the payment regime, but it has not been easy as economic factors always act as a barrier to the removal. 

Now, challenges across the fuel value chain are pushing prices beyond the official price of N180 per litre. Since mid-2022, Nigerians across various states have struggled with fuel scarcity due to distribution challenges. 

Fuel marketers have complained about buying the commodity from private depot owners at higher rates. So, they pass the burden on to retail stations who, in turn, sell at higher rates to customers than the official price

Word on the street: Nairametrics gathered that fuel now sells for N450 per litre in Uyo, Akwa Ibom state, N300 per litre in Benin, Edo state, N350 per litre in Calabar, Cross River state, and as high as N500 per litre in Port Harcourt, Rivers state. 

Port Harcourt resident Tekena told Nairametrics that fuel prices have been rising daily recently. According to him, fuel was sold for N400 per litre at the end of December 2022. But now, the commodity is sold for N500 per litre with black market rates at N700 per litre. There are no signs that the price will reduce anytime soon.  

Ijeoma I who resides in Benin told Nairametrics that motorists and business owners who wish to buy fuel at the official price have to queue at the few filling stations that are still selling at the regulated price. But in the end, people have no choice but to buy from other stations at increased prices when they cannot afford to lose hours of productivity

Calabar-based clergywoman, Mrs Atsu, told Nairametrics that fuel sold for as high as N500 per litre during the 2022 Christmas holiday but is now available for N300 to N350 per litre, depending on the location of the consumer.   

Fuel subsidy in the mix: Industry experts have repeatedly argued that it makes no sense for the Nigerian government to make fuel subsidy payments when Nigerians are buying fuel at increased prices across the country. 

Fuel subsidy removal could lead to oil nationalism and transparency in the sector, according to industry expert Oghosa Erhahon writes in this report for Borg. 

She further noted that subsidy retention or removal will be hard choices for the government and Nigerians as a whole.  

Fuel subsidy collapse: The federal government has recently announced that fuel subsidy payments will be stopped in June 2023. However, with the fuel price increases around the country in recent times, maybe the fuel subsidy regime is over after all. Energy analyst, Kayode Oluwadare refers to this phenomenon as pseudo-regulated prices. Oluwadare told Nairametrics that in Lagos mainland where he resides, fuel is sold for N260 per litre. He also confirms what Ijeoma earlier said that motorists endure long queues to buy at regulated prices from NNPC and NIPCO filling stations on the mainland.  

Oluwadare maintains that Nigerians should not equate these price increases with the reality that awaits when fuel subsidy is eventually removed. According to him, the same challenges like forex issues, bad roads, marketers, and private depot owners’ disagreements, which have made Nigerians struggle with fuel scarcity for years, will still be present even after fuel subsidy is removed. He said: 

• “Fuel subsidy removal will push up inflation. How will the government provide solutions to the impact the removal will have on the welfare of Nigerians and all the sectors of the economy including the capital market? The effects of subsidy removal will be multifaceted.  
• “If no sound palliative measures can come from the government that will remove subsidy, then it is pointless. I noticed that presidential candidates for the 2023 elections have been waxing lyrical about fuel subsidy removal but no one has presented a framework on how to do this without hurting the economic welfare of Nigerians.”  

According to Oluwadare, there is no way to tell what the price of PMS would be if the fuel subsidy is eventually removed. He said it could go beyond N500 to about N900 or even N1000 per litre. He further cautioned that since Nigeria is still lacking refining capacity, fuel prices will be determined by the ongoing Russia-Ukraine war as well as forex challenges and even the price cap on Russian oil and gas supplies which will affect international pricing. 

However, in September 2022, the NNPC said that if the fuel subsidy is removed, Nigerians will purchase fuel at N462 per litre.   

For the record: Oluwadare advocates that the fuel subsidy removal should be done in phases and conducted by an independent committee, that will also be charged with evaluating the impact of each phase, so Nigerians who are already battling with a 21.47% inflation rate, can cope better with the removal