2023: How fuel subsidy removal will affect you personally
As a Nigerian, you enjoy a direct subsidy of N283 every time you buy petrol at N165 per liter. But you'll be paying N448 per liter if the fuel subsidy is removed.
- The current official pump price of Premium Motor Spirit (PMS), better known as petrol at the time of this writing, is N165 per liter due to an N283 subsidy paid by the Federal Government.
- With over 200 million Nigerians consuming millions of liters of gasoline each month, the Federal Government is reportedly spending billions of naira per month to make the commodity available and affordable.
- The 2023 presidential candidate from the ruling party APC, the main opposition party, PDP and the rising third party, LC all promised to remove fuel subsidy if elected in 2023.
- According to popular opinions in the country, the removal of fuel subsidy will increase the rate of poverty and insecurity. However, some unpopular opinions share the idea that it would bring major developments to the country.
The government helps Nigerians by taking part in paying for the price of petrol used to run most of our vehicles, as we are high on carbon-consumed cars and our generators when the Power Distribution Companies (DisCos) interrupt the power supply.
With the FG allegedly paying more than 50 percent of the actual price of petrol, it is not just affordable; It is also accessible to the ordinary Nigerian, who can, with as low as N500, power their petro-consuming devices. But, how will the removal of the fuel subsidy affect the average Nigerian in the following years? Read on to find out.
Why is the FG paying for subsidies?
How did we arrive at the point where the FG subsidizes petroleum?
Without a doubt, Nigeria is rich in oil; in this case, unrefined oil, also called crude oil. However, it does not have functional refineries that can refine these crude oils into finished products like petrol, diesel, jet fuel, kerosene, paraffin, heavy fuel oil, liquefied petroleum gas, and petrochemical feedstock.
All the above-listed finished products of crude oil are used for our cars, generator, trucks, cooking gas, stoves, and other devices powered by fossil fuels.
But, since Nigeria does not have refineries to process its crude oil, it exports it in barrels to foreign countries with refineries and imports the finished product back into the country for domestic supply.
The Nigerian National Petroleum Company Limited (NNPC) is Nigeria's legal sole importer of refined petroleum.
All the expenses incurred during refining crude oil, including logistics per liter of petrol, are priced above N400, which is called the "landing cost."
This is the backdrop of why FG is paying subsidies; however, read below how it all started.
Subsidy: What you need to know about Nigeria's most expensive project
Fuel subsidy was introduced in Nigeria in the 1970s to respond to the 1973 global oil crisis. Members of the Organization of Arab Petroleum Exporting Countries (OAPEC) had placed an embargo on many countries, including the USA, UK, and Canada, for supporting Israel during the Ramadan War.
To deal with the rise in oil prices and make it easier for Nigerians to buy fuel for their cars, generators, and other devices, the federal government set up a subsidy to control fuel prices.
Taking it a step further, the Federal Government passed a law in 1977 that made fuel subsidies official. Until President Muhammadu Buhari's (though not the first) government announced it would be annulled from July 2023.
Gen. Olusegun Obasanjo
Chief Ernest Shonekan
Gen. Sani Abacha
Gen. Olusegun Obasanjo
Gen. Olusegun Obasanjo
Gen. Olusegun Obasanjo
Gen. Olusegun Obasanjo
Gen. Olusegun Obasanjo
Gen. Olusegun Obasanjo
Alhaji Umar Musa Yaradua
Dr Goodluck Jonathan
The landing cost of petroluem
The Minister of Finance, Budget, and National Planning Dr. Zainab Ahmed, said in August 2022, that the landing cost of fuel is around N448 when locally sold for N165.
As part of its poverty intervention program, the federal government perceived the injection of subsidy would relieve Nigerians who would have purchased fuel for N448. That means instead of paying N448, per liter of fuel, the average Nigerian would have to pay N165.
Fuel subsidy is the difference between the pump price (between N165 and N185) and the landing cost, which is N448 per liter.
With the federal government's subsidy intervention, Nigerians get to enjoy a savings of N283 every time they purchase a liter of fuel for at the price of N165.
From the aforementioned, fuel subsidy is an intervention from the federal government to ease life for the citizens. However, beneath this good-looking life-helping intervention, there is a rising controversy about the actual spent daily, concerning the dispute surrounding the amount of fuel consumed by Nigerians daily.
This controversial statistic has weakened the federal government's coffers, as they groan at the billions of Naira spent to allow Nigerians to buy fuel at N165; this is the bedrock of the call for the cancellation of fuel subsidies.
People now ask, how much fuel does Nigerians consume and how much does the FG spend on subsidization?
What is Nigerians' daily fuel consumption?
According to the Nigerian National Petroleum Company, now a Limited Company, Nigerians consumes 66 million liters of fuel daily. If you multiply the overhead figure by 30 days, Nigerians consume over 19 billion liters of petrol monthly.
The Minister of Labour and Employment, Festus Keyamo, said the Federal Government spends between N250 billion and N300 billion monthly to subsidize fuel.
While 66 million liters of fuel is bandied as our official statistics of daily petrol consumption by the NNPC, some notable Nigerians have disagreed with this figure.
Some notables have criticized the NNPC's claimed 66 million gallons of fuel subsidy consumption, claiming the corporation cannot prove the figure.
Among the many notable Nigerians faulting the daily fuel consumption figure of the NNPC is the former Governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi.
The former Emir of Kano believes that the 66 million liters of petrol consumption figure by the NNPC are highly inflated.
Sanusi's argument is premised on the fact that the official daily consumption of fuel by Nigerians was 40 million but was later reduced to 66 million in three years.
This begs the question, what is responsible for the astronomical hike in Nigeria's fuel consumption? Would it be an increase in population or an increase in cars owned in the country?
For reference, Pakistan, which has about the same population as Nigeria (over 200 million), does not consume 66 million liters of petrol daily.
Statistics from the Pakistan Bureau of Statistics, as reported by a Tech and Business platform situated in the country, Propakistani, confirmed the country consumes 44.24 million liters of fuel.
It said, "the total fuel usage in Pakistan amounts to 56 million liters per day, out of which 44.24 million liters of fuel are consumed by vehicles."
Although experts and notable Nigerians have refuted the NNPC figure, the NNPC has the autonomy on what they say as they are legally vested with the governance of everything related to fuel or petrol in the country.
Following the NNPC's arguable and disputable figure, many Nigerians believe fuel subsidy payment to be a scam.
Should the fuel subsidy be removed?
The ruling All Progressives Congress, the main opposition party, Peoples Democratic Party, and the third force, Labour Party presidential candidates, have all promised the full removal of fuel subsidy if elected in 2023.
While Bola Tinubu of the APC and Atiku Abubakar of the PDP promise to remove fuel subsidy in stages to curtail the economic hardship it would have on Nigerians; Peter Obi thinks a one-time removal is needed to boost Nigeria's economy.
The former Anambra Governor, on his part, believes fuel subsidy is nonexistent, as claimed by successive governments. He believes fuel subsidy is an "organized crime" and should be overhauled.
Meanwhile, this is not the first time fuel subsidy removal will be a bone of contention, as former President Goodluck Ebele Jonathan moved the motion in 2012 while serving his first term in office.
However, Jonathan's fuel subsidy removal move was faulted as the Nigerian Labour Congress ordered a national strike action to demand its stoppage.
Although the David Mark-led administration of the national assembly kicked against Jonathan's proposed fuel subsidy removal, it later made a U-turn in its favor.
Nigerians also opposed the removal, as they believed it would cause untold hardship to them, considering the economic challenges they are already dealing with in their daily lives.
In unison, Nigerians defeated Jonathan's planned subsidy removal.
Another attempt at fuel subsidy removal and how it will affect you
The Group Chief Executive Officer (GCEO) of the Nigerian National Petroleum Company Limited (NNPCL), Mele Kyari, in November 2021, said if the fuel subsidy is removed in 2022, the price of fuel will be between N320 and N340 per liter.
In another prediction by an oil and gas regulatory body in Nigeria, the Department of Petroleum Resources (DPR), the pump price of petrol will hike to N1000 per liter if the fuel subsidy is successfully removed.
If and when the Federal Government fully halts the subsidizing of fuel, every Nigerian will buy petrol at an average price of N400 per liter.
However the next president decides to go about subsidy removal, it would undoubtedly affect the finances of the ordinary people considering the food crisis that may hit the country due to the recent flooding.
That means that your Toyota Corolla tank that is filled with N8,000 will now cost you N20,000 to fill.
While fuel subsidy removal is the right decision as it would help the government channel its resources to revenue-generating projects like education, power generation, and road and infrastructure building, it will change a lot of things.
This is because Nigeria's economy is still very fragile and is built on fuel, as we are known to be an oil-producing nation.
Fuel subsidy removal: Its effect on Nigerians
While the removal of fuel subsidy is greeted with mixed feelings as economists argue that it helps curtail the excess 'waste' of resources on a non-productive commodity, there's no argument that will affect the lives of millions of Nigerians.
Yes, according to the National Bureau of Statistics, 133 million Nigerians, or 63 per cent of the nation's population, are already battling poverty-driven lives; however, a surge is expected if the Federal Government quit subsidizing fuel.
In his reaction to the removal of fuel subsidy, former head of state, now elder statesman Abdulsalami Abubakar said the removal of fuel subsidy would throw many Nigerians who are already strong enough to survive into economic hardship.
Abdulsalami, in his submission, advised the Federal Government to bury the idea, as he argues that the insecurity ravaging the country will only rise if fuel subsidy is removed, which he predicts will increase the already harsh economy of the average Nigerian.
He opined, "There is a continuous rise in the prices of food items beyond the reach of many Nigerians. On top of all these, fuel prices are expected to rise significantly in the coming months, as announced last November. We all know that when this happens, it will push many millions of Nigerians into poverty,".
The National Peace Accord committee leader who made this submission at the 19th Daily Trust Dialogue in Abuja on January 20, 2022, themed "2023: The Politics, Economy, and Insecurity," condemned the removal of fuel subsidy as he opines that Nigeria is at a crossroads.
In a contradictory remark, a study by Balouga (2012) argued that fuel subsidy is not felt by average Nigerians, who are supposed to be the major benefactor of the programme.
Analysis of the effect of fuel subsidy, a study by Adagundo (2013), which examined the economic and political necessity, explained that contrary to the popular notion of economic hardship if fuel subsidy removal is done correctly, it "could lead to major development gains for the country".
Adagundo's study also points out that removing fuel subsidies will help create "space for Nigeria to develop refinery capacity finally and consequently increase its potential revenue from the oil sector and create jobs."
In the study, Adagundo conducted a questionnaire to conclude his verdict that fuel subsidy, if removed properly, will improve the nation's economy and, by large, the citizens.
From the Adagundo study, fuel subsidy should be removed because it is not impactful on average Nigerians; 4.9% of Nigerians maintained that they did not feel the impact of fuel subsidy on their lives. 33% argued that the impact of fuel subsidy was very little, while only 6% felt very little impact.
The study also revealed that fuel subsidy has largely hiked the petroleum pump price; hence its removal will bring the petroleum pump price to a stable rate which can help businesses make more informed decisions about their business power decisions.
According to Adagundo, fuel subsidy will only bring the pump price of fuel in Nigeria up to the world rate but, in return, will stabilize the nation's economy by curbing the excessive waste incurred by the government while subsidizing fuel.
The Federal Government, in its economic intervention plan, said it would pay poor Nigerians the sum of N5,000 monthly for transportation, a move that many consider consolidating.
Although the N5,000 intervention by the Federal Government to citizens is a low-cut plan considering the current high cost of living, especially in the nation's urban areas, removing fuel subsidy may boost Nigeria's economy in general, which will, in turn, boost the individual and business finances.