Petrol Subsidy Return Could Cost Nigeria N20trn Annually—CPPE

By Adedapo Adesanya

The Centre for the Promotion of Private Enterprise (CPPE) has warned against any return to the old universal petrol subsidy regime, saying it could expose Nigeria to an estimated annual subsidy bill of about N20 trillion.

In a policy brief titled Petrol Subsidy: Preserving Reform Gains While Protecting Citizens released on Sunday, the centre said the recent surge in petrol prices had placed severe pressure on households and businesses by raising transportation, logistics and production costs and weakening consumers’ purchasing power.

Business Post reports that the price of premium motor spirit (PMS), otherwise known as petrol, has further increased, with some fuel stations selling above N1,400 per litre outside Lagos.

The brief, signed by the think tank’s chief executive, Mr Muda Yusuf, said the solution should not be a return to the pre-reform subsidy system, but targeted measures to cushion vulnerable Nigerians and reduce the wider economic costs of high energy prices.

According to the CPPE, the subsidy debate has implications for government finances, foreign exchange, investment, domestic refining, industrialisation, employment and energy security.

It said Nigeria previously spent an estimated $10 billion to $15 billion annually on petroleum-product imports, putting pressure on foreign exchange liquidity and external reserves, while subsidy and under-recovery obligations consumed public resources and increased fiscal pressures.

The organisation also noted that artificially low petrol prices encouraged arbitrage and cross-border diversion, effectively using Nigerian public resources to subsidise fuel consumption outside the country.

On domestic refining, the CPPE said market-based pricing had improved the commercial prospects of local refineries after years of uncertainty and administratively controlled prices discouraged investment.

It said a stronger refining industry would create opportunities in diesel, aviation fuel, petrochemicals, fertiliser, plastics, chemicals, logistics, storage and maritime services, while reducing petroleum import dependence, conserving foreign exchange and creating jobs.

The centre urged the government to develop Nigeria into a competitive regional refining and petrochemical hub, while ensuring that additional revenues from subsidy removal translate into visible improvements in public transportation, electricity, healthcare, education, food security, infrastructure and social protection.

The CPPE also warned against attributing the entire recent petrol price increase to subsidy removal, noting that prices had risen from about N774-N800 per litre before the latest conflict-related surge in global energy prices to above N1,300 per litre.

It said the structural price adjustment from subsidy removal should be distinguished from the more recent increase caused by global crude oil and refined-product price shocks.

Using a petrol consumption benchmark of 50 million litres daily and an indicative subsidy of N1,050 per litre, the organisation estimated that restoring the subsidy could cost the government N52.5 billion daily, N1.575 trillion monthly and about N19.16 trillion annually.

It warned that such expenditure would compete with funding for infrastructure, education, healthcare, security, agriculture and social protection, while increased borrowing could widen the fiscal deficit, raise debt-service costs and reduce credit available to businesses.

Rather than restore universal subsidies, the CPPE recommended expanding affordable mass transit, rail freight and logistics infrastructure, improving electricity supply and accelerating the adoption of CNG, solar and other distributed energy solutions.

It also called for stronger food production, targeted support for vulnerable households, improved healthcare and education, and measures to reduce energy, logistics and financing costs for businesses.

The organisation urged government to maintain a predictable, market-oriented framework for domestic refining and improve transparency and accountability in the use of additional revenues accruing to the three tiers of government.

It said the focus should be on preserving downstream petroleum reforms while aggressively reducing their social and economic costs.