Amin Buba Dibal
On 29th May 2023, fuel subsidy was removed and, on that day, the prices of petroleum fossil fuels tripled, and by the end of the year, prices over quadrupled, from N180 in the morning of May 2023 to almost N1200 per litre by the end of the year, a 362% increase.
The policy statement formed pre-2023 presidential campaign promises of the three major political party candidates of the ruling All Progressives Congress (APC), People’s Democratic Party (PDP), and Labour Party.
The impact of fuel subsidy removal sent ripple effect across the economy of Nigeria, with severe livelihood implications for the population, acknowledged by Nigeria Bureau of Statistics, the World Bank, IMF and independent economy focused firms.
Subsidies are not entirely bad, indeed there is no country that do not subsidize one service or the other for the benefit of its economy and people and most importantly around energy to stimulate economic growth.
Despite a 2016 pledge to phase-out fossil fuel subsidies by 2025, G7 have continued to provide more funding, with subsidies reaching a record $1.36 trillion in 2023 according to the International Institute of Sustainable Development.
For Nigeria, the source of “subsidized energy” has been cheap fuel in the face of a collapsed electricity supply, hovering between 3-500 megawatts for a population of over 220 million people.
Several reasons have been postulated to justify fuel subsidy removal in Nigeria by oil industry experts, economics experts, business journalist and politicians.
However, minority voices from the oil industry and other development experts were screaming from beneath the voices for removal.
From a logical and common-sense perspectives, the whole idea of the need for fuel subsidy removal which all our key political parties banded around before the 2023 elections is here interrogate and appeal for the need for more critical analysis of campaign issues and public discuss before critical policy directions are taken or made a campaign promise.
What are thus the reasons postulated to justify removing the subsidy regime? The reasons postulated include the following: Salvaging Nigeria from a revenue crisis, reducing financial strain, reallocating resources, halting market distortion and smuggling and addressing economic inequality.
Salvaging Nigeria from revenue crisis
It is undoubtedly true that the fuel subsidy regime in Nigeria has caused the country billions of dollars over the years and indeed caused Nigeria dearly in revenue to the extent that as at the end of the Buhari administration, in 2022 alone, the Nigerian National Petroleum Corporation (NNPC) spent an estimated $10 billion on fuel subsidies, an amount oil industry experts say looks like amount meant for subsidy for the entire west African region, implying lack of transparency in the process.
The focus of our political parties and their presidential flag bearers on revenue generation should not have been removing subsidy, beneficial for not just the Nigerian but the economy but deploying the political will to stop revenue leakages across sectors of government and especially the oil sector through bureaucratic system review, transparency and accountability.
Some of the short-term measures in the major sectors and sources of revenue were to stop the unthinkable oil theft by the Nigerian defence and security system agencies, pursuing immediate remittance of revenues by NNPC and other oil companies operating in Nigeria, and addressing under invoicing and misreporting of oil exports, which are basic administrative issues that with needed political could be addressed in few months.
Key findings from Falana’s investigations on crude oil theft as regards sales in Philadelphia sea port alone based on request for information further to a NIMASA report in March 2018 revealed the following: between 2011 to 2014, the value of oil stolen based on comparison of Nigeria’s ports and Philadelphia port alone, just one of the numerous ports Nigeria’s oil reaches-, discrepancies in records revealed that in the three years, $ 12.7.billion was stolen.
The Falana investigation postulates that in implication, if similar audit were to be conducted in other many ports that Nigeria oil is sold through could amount to $200 billion dollars.
Furthermore, royalty payments by oil companies were also largely not accounted for. On the other hand, according to NEITI, Nigeria has lost over $46 billion to crude oil theft and mismanagement between 2009 to 2020.
In the non-oil sector, Nigeria also loses trillions of naira in revenues leakages that could be stemmed to boost income base for the country rather than targeting subsidy in fuel.
According to the Chartered Institute of Forensic and Certified Fraud Investigators of Nigeria (CIFCFIN) in November 2023, Nigeria loses about N1.4 trillion annually to contract scams and related fraud, and warned that the figures could rise to N3 trillion by 2025.
In 2023, the customs complained that waivers and concessions have resulted in a loss of N.1.3 trillion naira from the agencies’ projected revenue.
Budget padding running into trillions of Naira, duplication of projects, hyperinflation of contracts and incompletion of projects for re-budgeting the following year are common practices.
In the banking sector, it was alleged in 2022 that over 20 trillion naira in stamp duty of bank electronic transfers over five years have not been remitted to the federation account, though CBN audit later showed that the amount was N579 billion.
In NPA and Customs again, the Senate in December 2023 alleged revenue leakage potentially up to $1.6 billion.
According to the United Nations Conference on Trade and Development (UNCTAD), Nigeria lost 41 billion dollars in illicit capital flight based on trade mis-invoicing, and other balance of payments and leakages between 2013 to 2015; and according to Nigerian government agencies and CSO sources, $18 billion is lost annually to illicit capital flight between 2022 to 2025 with no attendant accountability.
Addressing these issues would not have made it necessary for any campaign promise made around subsidy removal by any of our presidential candidates in the run-up to the 2023 elections.
The empowerment of EFCC, NEITI, ICPC and NNPC through non-political interference in their activities and funding of the agencies would have helped in boosting revenue for Nigeria.
Curbing corruption and Inefficiencies in the oil industry
Inefficiency and corruption have led to the non -working of Nigeria’s three national refineries. This also served as a key reason for fuel subsidy removal because Nigeria could unfortunately not been able to produce oil locally for its domestic consumption despite having billions of oil and gas reserves.
Nigeria has spent billions of dollars overtime to maintain its refineries for optimum production but the refineries remain non-operational with no one held accountable.
In 2009, $200 million was spent on the Turn Around Maintenance (TAM) for the Kaduna Refinery; between 2013-2015, $396 million was spent on the TAM of the Port Harcourt, Warri, and Kaduna refineries; in 2021, $1.5 billion for TAM of Port Harcourt, Warri and Kaduna refineries was awarded by the Buhari administration.
Due to managerial inefficiencies and corruption, NNPCL was indicted by the national Auditor-General’s report (2021) for diverting N514 billion via unauthorized deductions and failed remittance meant for the Federation Account.
As a result, NNPC, as an oil refining company with oil wells, has turned into an importing company.
Report from sources especially the former EFCC boss, Abdulrasheed Bawa’s book titled “The Shadow of Loot & Losses: Uncovering Nigeria’s Petroleum Subsidy Fraud” specifically posited that “…there is no sincerity on the part of public officials in Nigeria to tackle the root cause of the problem associated with the high cost and unsustainable subsidy regime which are actually around round-trips of oil deliveries to Nigeria, multiple duplication of claims for subsidy, lack of political will to fix our 4 refineries end patronage practice of fuel importation, and the refusal of authorities to meter exploration of crude oil exploited in Nigeria.”
Our major political parties (APC, PDP and Labour) should not have contemplated removing subsidy as response for curbing corruption and inefficiency in the oil sector.
Market Distortion and Smuggling
The third reason postulated for subsidy removal was market distortion and smuggling.
A key part of the Falana investigative finding on the 2023 NIMASA report accounted that a monitoring technology bought by the Nigerian government for N50 billion to allow for tracking the movement of Nigerian oil tanks was either not installed or is disabled from doing what it was meant to do. The reason for procuring the oil tanker tracker technology was to halt smuggling across the Nigerian borders.
Considering the terrain by Nigeria’s borders, it is extremely difficult if not impossible for trucks to cross the border through the bushes or open Savannah/Sahel but through tarred roads where Nigerian security agencies like the customs, immigration civil defence corps, and police are present.
This implies smuggling by motorbikes and small saloon cars with enlarged fuel tanks.
A country should not withdraw subsidies because of pockets of cross-border smuggling by motorbikes or small private vehicles, any smuggling by other means as trucks, officials of border security agencies should be held responsible.
On the perspective around the need to remove the subsidy because it discourages private investment in local refineries, our politicians and government should have proposed a negotiated a subsidy arrangement with the Dangote refinery for domestic consumption because of the significance of subsidies to the Nigerian economy and energy security.
Moreover, this is because the amount claimed for subsidy by NNPC in terms of our oil consumption stands around 93 million litres a day (disputed by other government agencies), but recent Dangote activities in the oil sector have now revealed a wide margin to actually 32 million litres a day consumption by Nigeria.
Subsidy for 32 million barrels for domestic consumption should not have been too much for Nigerians and the economy given the attendant negative implications of subsidy removal.
This should not have been a justification to contemplate subsidy as a mitigative action to market distortion and smuggling giving the extreme importance to living standards, energy security and wellbeing of the Nigerian economy.
Reallocating resources to enhance development.
The fourth reason for contemplating the removal of subsidy before the 2023 elections and its eventual removal in May 2023 was the need to deploy funds to other sectors of the Nigerian economy.
However, given the energy crisis in Nigeria, there is no important sector to deploy funds to like a sector that would help Nigerians make a living.
Energy poverty, we understand, is a major cause of multi-dimensional poverty, and energy is the key most important ingredient for industrialization and the means to impact the lives of Nigerians across board and stimulate economic growth is acutely inadequate, with only 3,500 megawatts for 220 million people.
Notwithstanding the importance of revamping infrastructure in the transport system, power, healthcare, education, and general social welfare programs, savings from sanitizing the oil industry and other non-oil revenue-generating agencies would have provided funds for the government to meet its obligations in other sectors.
The subsidy benefits only the rich
The fifth reason argued for removing fuel subsidy before the 2023 general elections was that the fuel subsidy intended to benefit especially the poor were found to disproportionately benefit the rich who consume more fuel.
This reason was highly ill thought through, instead of removing subsidy and push over more 10 million people further into poverty in addition to the 140 million Nigerians already in multi-dimensional poverty is to rather address the inefficiencies that has corrupted the subsidy regime.
As widely alluded to in Nigerian local palace discussions, that “you don’t throw away the birth water with the baby”, the subsidy regime should have been sanitized from corruption to continue supporting the Nigerian economy.
In other words, it is just like saying one is giving aid to a family and then realizes that the father of the household is misappropriating the aid; thus, instead of the donor innovatively coming up with strategies to ensure the aid reaches the pauperized family members, the donor responded by altogether canceling the aid.
If the subsidy was actually benefiting only the rich, it would not have thrown over 10 million people into poverty, induced shut-down of numerous supermarkets across cities and manufacturing companies lamenting.
According to the Manufacturers Association of Nigeria (MAN), the inventory of unsold finished products in the manufacturing sector surged by 357.57% year-on-year, reaching N1.24 trillion in first half of 2024 compared with about N271 billion in the same period in 2023.
MAN attributed the rise in unsold stock to “declining consumer purchasing power due to escalating inflation, subsidy removal and naira devaluation”.
Conclusion
Poverty and the cost-of-living crisis still widely prevails in households across the country despite government efforts through different social interventions to cushion the effect of subsidy removal because there is indeed no intervention that could have ripple effect across the economy than subsidised energy which is for Nigerians, affordable fuel in the face of only 3,500 megawatts of electricity supply and decayed goods haulage system.
It would not be too much for the Nigerian government to consider subsidies on fuel to reduce inflation, poverty, stimulate the economy, and enhance manufacturing and energy poverty.
This could be addressed through a special-arrangement with home-based refineries in the spirit of, for example, the imposition of a 15% tariff on the importation of refined petrol commendably done by the Tinubu administration in October 2025 and attendant slight fuel price drop.
It will not only be a viable policy option for the administration’s image but will enhance its political credentials in the run-up to the 2027 elections.
