What we know about Nigeria’s fuel subsidy regime and its origin
Panic, uncertainty, scarcity, and a hike in petrol prices trailed President Bola Tinubu’s declaration of fuel subsidy removal in his inaugural speech on May 29, 2023. Across the country, queues have returned to fuel stations, a similar scenario witnessed between November 2022 and January 2023 as Nigerians were preparing for the 2023 general election. In many cities, the price of Premium Motor Spirit (PMS), known as petrol, increased by 117.39%, from ₦230 to ₦500, a few hours after the announcement.
Tinubu, in his inaugural speech, said, “Subsidy can no longer justify its ever-increasing costs in the wake of drying resources,” but his promise that the money removed from subsidy will be re-channeled into “investment in public infrastructure, education, healthcare, and jobs that will materially improve the lives of millions” failed to appeal to Nigerians as petrol stations witnessed a surge in people rushing to buy fuel.
For over five decades, oil subsidy removal has been a hot debate in Nigeria’s polity, which often generates mixed reactions among Nigerians. According to research by Afrobarometer, 62% of Nigerians do not want the government to remove fuel subsidies, which had foiled several attempts by past administrations to phase out the regime that purportedly began in 1970.
Why Nigeria started subsidising fuel
In 1973, members of the Organization of Arab Petroleum Exporting Countries (OAPEC), led by King Faisal of Saudi Arabia, declared an oil embargo on Canada, Japan, the Netherlands, the UK, and the US, nations that supported Israel during the Yom Kippur War. Oil prices surged by over 300%, from $3 per barrel to nearly $12 per barrel globally. The Nigerian government, led by Yakubu Gowon, introduced a regime of subsidising the landing cost of petrol and other refined petroleum products in Nigeria to cushion the effect of the price hike on Nigerians.
But several economists and experts in the petroleum sector, including the Group Managing Director of the Nigerian National Petroleum Corporation, Mele Kyari, have argued that subsidising fuel, which cost the nation over ₦10 trillion between 2010 and 2020, benefits the wealthy more than the 80 millions of Nigerians that live below the poverty line of $1.9 per day.
“The subsidy is an elitist thing, and I can share that with you. It is only the elite who will have three, five cars in their houses, fill the tanks, and also feel comfortable doing this,” he said in 2020.
He added, “The ordinary man is not the beneficiary. First, he loses in infrastructure, hospitals are not built, schools are not built, and ultimately the brunt of the corruption in the downstream sector will be transferred to them.”
Attempts to remove Fuel Subsidy
On January 1, 2012, former President Goodluck Jonathan announced the removal of fuel subsidy, just before several Nigerians who traveled for the Christmas celebration were able to make it back to their states of residence. The removal sparked one of Nigeria’s biggest nationwide protests, Occupy Nigeria, purportedly fueled by notable members of the newly formed opposition party, All Progressive Congress (APC), including Bola Tinubu, who has now declared the regime as unsustainable.
From Nigeria’s capital to Kano, Lagos, the nation’s economic hub, people took to the streets in protest of the subsidy removal, with Denja Yakub of the Nigerian Labour Congress threatening that the union would shut down the Nigerian airspace to both local and international flights. While the removal was later revoked after a week of protest amid pressure on the government, Jonathan’s successor, Muhammadu Buhari, after several attempts to end the subsidy era, set June 2023, a month after the end of his tenure, as the deadline for the removal of fuel subsidy.
While Tinubu’s inaugural speech caused panic and petrol rose by over ₦200 in a single day, it was in effect a reconfirmation of the 2023 budget which provided a petrol subsidy of ₦3.36 trillion for the first six months of the year.
Even with the newly commissioned Dangote Refinery, which is expected to have its first product by the end of July 2023, it is still uncertain whether Nigerians will buy fuel for less than ₦230, the price it was before the recent hike.
Reacting to the expectations from the Dangote Refinery, the President of NLC, Joe Ajaero said, “first, I commend Dangote Refinery but the provision of having a dictatorship of the market, especially in the private sector, is dangerous. Now that is what we are experiencing in the area of cement production. What is Dangote Refinery going to produce? Will it be enough?”
