Nigeria is facing a significant economic challenge as the Federal Government (FG) may soon spend an estimated N236 billion monthly to subsidize Premium Motor Spirit (PMS), commonly known as petrol. This hefty bill stems from both imported petrol and the locally produced PMS from the Dangote Petroleum Refinery, distributed through the Nigerian National Petroleum Company (NNPC).
On September 15, 2024, the Dangote Petroleum Refinery began supplying Nigeria’s domestic market with 25 million litres of petrol daily. While this development was initially seen as a significant step toward addressing the nation’s fuel demands, it has also brought to light the ongoing burden of fuel subsidies. Currently, the government subsidizes Dangote petrol by N132 per litre, which means NNPC is shouldering approximately N3.3 billion daily or N99 billion per month to keep fuel prices relatively affordable for marketers.
Despite the Dangote refinery’s contributions, Nigeria still imports petrol to meet its daily consumption needs. Recent estimates place the country’s PMS consumption at 45.7 million litres daily, meaning about 20.7 million litres of petrol must be imported daily. However, with a landing cost of N1,117 per litre for imported petrol and NNPC selling it at N895 per litre to independent marketers, the subsidy on imported fuel stands at N222 per litre. This adds another N4.59 billion daily, translating to N137.86 billion per month.
When combined, the government is projected to spend approximately N236.86 billion monthly in fuel subsidies alone.
The ongoing subsidy has sparked renewed debates. Recently, Aliko Dangote, President and CEO of Dangote Group, called for the total removal of fuel subsidies, echoing sentiments shared by various industry stakeholders. He argues that subsidies encourage inefficiency and result in the government paying more than necessary. According to Dangote, removing subsidies would not only reduce smuggling but also allow the government to determine Nigeria’s actual petrol consumption more accurately.
This stance has gained support from the Independent Petroleum Marketers Association of Nigeria (IPMAN) and the Centre for Promotion of Public Enterprise (CPPE). Many in the sector believe that with the current high pump prices, it is an opportune moment to eliminate subsidies.
One of the biggest questions surrounding Nigeria’s fuel consumption is whether the reported figures reflect actual domestic usage or include large-scale smuggling. Official data from 2022 indicated a daily consumption of 64.14 million litres. However, after the removal of fuel subsidies in May 2023, this figure dropped to 45.74 million litres by July 2023 a reduction of over 34%.
Experts suggest that the decrease may not be a genuine reduction in fuel consumption but rather a decline in smuggling to neighbouring countries, estimated at around 15.6 million litres daily. Nigeria’s neighbouring countries, where petrol prices are significantly higher, present a lucrative market for smuggled PMS.
The issue of fuel subsidies has long been a contentious topic in Nigeria. According to Dr. Muda Yusuf, Director of the Centre for Promotion of Public Enterprise, the situation is tricky for both the government and the NNPC. Subsidies have become unsustainable due to currency depreciation and the wide price disparity between Nigeria and its neighbouring countries, where petrol costs between N1,300 – N1,500 per litre.
Given the current economic reality, the Nigerian government faces tough choices. Continuing the subsidy regime could cost up to N10 trillion annually, while its removal would likely lead to even higher petrol prices. The FG’s decision to end the oil subsidy regime earlier this year, while unpopular, was seen as a necessary step to prevent further economic strain.
Looking ahead, stakeholders, including major petroleum marketers, believe that increased domestic refining capacity led by the Dangote Refinery and smaller modular refineries offers a long-term solution to Nigeria’s fuel challenges. Huub Stokman, Chairman of the Major Energies Marketers Association of Nigeria (MEMAN), emphasized the importance of cooperation between public and private sectors to ensure the sustainable supply of affordable fuel to the Nigerian market.
As Nigeria continues to grapple with its energy needs, the question remains: Can the government strike a balance between meeting fuel demands and managing the heavy financial burden of subsidies,The answer may ultimately depend on its ability to increase local production and bring stability to its refining sector.