Issues Around Current Fuel Pricing in Nigeria

While Nigerians continue to bear the brunt of removal of fuel subsidy which has led to high inflation, the federal government believes the eventual gain of the policy would far outweigh the temporary pain. Adedayo Akinwale reports.

It will be an understatement to say Nigerians are suffering at the moment. Surviving in Nigeria at the moment is now the survival of the fittest. In other words, these are not the best of times for Nigerians. Stealing, robbing and other social vices are on the increase as Nigerians struggle to survive at this trying moment.

While most Nigerians agreed that fuel subsidy had to go, the attendant consequences which has made life unbearable for the majority of Nigerians has forced many people to demand the return of fuel subsidy, which have over the years  benefited and enlarged the coasts of prosperity of a few elites.

If truth be told, the effect of subsidy removal on Nigerians is far worse than what the  government and everyone envisaged.

With the oil and gas sector fully deregulated, Nigerians may heave any sigh of relief very soon as market forces will continue to determine the prices of oil. While this itself is not a bad thing, the fast rate at which the nation’s currency has continued to lose value has made it unbearable.

 It is a known fact that the full deregulation of the sector will drive competition, innovation and create employment along the value chain. It will boost investment in downstream infrastructure that have stagnated and remained in comatose for over four decades.

Incidentally, the Nigerian National Petroleum Company Limited (NNPCL)  which is now set up to make profit under the Petroleum Industry Act (PIA) can’t also afford to sell below its cost price.

Initially, most Nigerians were of the view that the coming on board of Dangote Refinery would be a game changer and Nigerians can indeed enjoy a relatively cheaper fuel, but in reality, Dangote cannot sell below its cost price and marketers, including NNPC that bought from Dangote Refinery can’t also sell below their cost price.

With this reality, it is now a known fact that local refining would not lead to cheaper fuel. However, the economic benefits of local refining, especially from Dangote Refinery and other local refiners, is much more than just cheap petrol.

For instance, refining petroleum products locally will help industrialisation, create thousands of jobs, expand downstream infrastructure, stabilise forex and make local currency gain strength which will ultimately reduce inflation and bring down cost of goods and services. Additionally, Nigeria earns forex when it becomes a net exporter of petroleum products which is the ultimate goal.

In other words, global market forces determine fuel prices in Nigeria. Despite local refining at Dangote and the soon-to-be-licensed NNPC Port Harcourt Phase I (currently undergoing final testing of completely and partially rehabilitated sections), the cost of crude oil and other production factors remain aligned with global benchmarks.

Against this background, removing subsidies means that the prices Nigerians pay at the pump reflect the actual cost of refining, logistics, and distribution. This shift ensures long-term sustainability for the sector after decades of inefficiency and subsidy abuse.

Beyond these immediate benefits, the full deregulation and local refining also open the door to increased investment in the downstream sector, which will create thousands of jobs and catalyse industrialisation.

It will be recalled that the federal government had argued over the times that the subsidy regime, which cost Nigeria billions of dollars and drained resources from critical infrastructure projects, is no longer sustainable.

As such, removing it has allowed the market to operate freely. Prices may initially rise, but global oil prices, exchange rates, and local refining costs influence them. If crude oil prices fall or refining becomes more efficient, pump prices will adjust accordingly. Removing subsidies also curtails fuel smuggling, which had been rampant under the subsidised regime.

Aside from that, the removal of subsidies opens up opportunities for local refineries to thrive. As investments increase in the refining sector, the downstream market will become more competitive, attracting investors and creating jobs that Nigerians need.

Initially, the independent marketers were at war with the NNPC for being the sole off-takers from Dangote Refinery. But at the moment, and in line with the tenets of deregulation, independent marketers are free to purchase fuel directly from Dangote Refinery and other local or international refineries.

This ensures a more competitive market and broader distribution, helping to stabilise prices and improve access across the country. NNPCL no longer holds a monopoly over fuel procurement.

In addition, independent retail stations and NNPCL are free to buy PMS (from wherever it is available and more affordable) and sell it to Nigerians within a margin as stated in the PIA and regulated by the NMDPRA and other relevant agencies. It is a willing buyer-willing seller market now.

Following the reforms under the PIA, NNPCL is no longer a regulator of fuel prices. It now operates as a commercial entity and a limited liability company, competing with other players in various aspects of the petroleum and fuel market – upstream, midstream, and downstream.

Moreso, NNPCL purchases fuel based on agreed commercial terms from local or international refiners or suppliers and distributes it like other marketers to its retail stations or others who want to buy from them. The price of petrol, whether from NNPCL or any independent marketer, is decided by market forces, as well as the cost of products they receive from local refineries or global suppliers. For instance, the latest batches of products obtained from the private local refinery in Nigeria were sold to NNPCL by the refiners at around N998 per litre.

Nevertheless, the majority of Nigerians have not seen the benefits of removing fuel subsidies as inflation and high cost of living remain the order of the day. Incidentally, NNPCL said removing subsidies will free up billions of dollars that can be channelled into critical sectors like healthcare, education, infrastructure, and job creation.

This, it said, will reduce the government’s borrowing needs, stabilise the Naira and create a more competitive market for domestic refining. It will also incentivise local refineries to expand their capacity, reducing the dependence on imported fuel and increasing Nigeria’s energy security.

It added that by significantly boosting investment in the downstream sector, the country has the opportunity to generate thousands of jobs, drive industrialisation, and liberate Nigeria from its reliance on imported refined petroleum products.

Be that as it may, fuel prices are expected to stabilise as local production increases and competition between independent marketers grows. Moreover, as more refineries come online, the reliance on expensive imported fuel will decrease, further stabilising the market and potentially driving down prices. Global oil price declines will also directly impact pump prices in Nigeria. As investments continue to flow into the local refining sector, Nigeria is expected to see a reduction in fuel imports. This will drive long-term price stability and foster job creation in refining, logistics, and retail sectors.

As part of measures to cushion the effect of subsidy removal, government is promoting the adoption of Compressed Natural Gas (CNG), a cheaper and cleaner alternative to petrol through the Presidential CNG Initiative.

CNG is currently priced significantly lower at N230 per litre, offering immediate relief to consumers. The government is also encouraging investment in infrastructure to support CNG adoption in the transport sector. The government has also started a convert-now-pay-later scheme to help vehicle owners convert their cars easily. Go to the nearest conversion centre in your state and switch to CNG. A full tank of CNG is said to provide the same service as four to six full tanks of petrol for your car. It is also safer, cheaper, while CNG stations are being made available across the country in partnership with the private sector.

While the government is aware that the CNG will not bring the sort of relief expected by Nigerians at the moment, the government expects Nigerians to support these reforms by being patient and understanding the broader benefits of a fully deregulated market. It admitted that there might be temporary pain, the long-term gains—such as more jobs, improved infrastructure, and reduced smuggling—will benefit the entire economy.