Categories: Revenue

Nigeria eyes $2.6 billion savings after abolishing corrupt fuel subsidies

Nigeria expects to save as much as one trillion naira ($2.6 billion) a year after it abolished subsidies paid to guarantee cheap gasoline in Africa’s top oil-producing country Naija247news reports.

Quoting reports from Bloomberg by Nigeria’s Petroleum Minister of State Timipre Sylva told reporters Thursday in Abuja, the capital. “It will save us up to a trillion naira and more every year.”

“Already, we have taken off the budgetary provision for subsidy which is about 500 billion naira,”

Reports S&P Global revealed that from After several attempts to reform Nigeria’s downstream oil sector, Africa’s largest producer has finally got rid of costly fuel subsidies and moved to a market-based pricing regime for gasoline, in the wake of the oil price crash.

The government said late June 4 that President Muhammadu Buhari had granted approval to the Petroleum Products Pricing Regulatory Agency to remove the price cap that was in place for gasoline, or premium motor spirit as it is known in the country.

For its part, the PPPRA said: “From the commencement of these regulations, a market-based pricing regime for Premium Motor Saint (PMS) shall take effect…The agency shall monitor market trends and advise the Nigerian National Petroleum Corporation and oil marketing companies on the monthly guiding market-based price.”

Price cap removal
The crash in global oil prices earlier this year provided Nigeria an opportunity to liberalize the sector and end its subsidy regime.

Nigeria had capped the pump price of gasoline — which is bought on the wholesale market on a dollar-denominated basis — at Naira 145/liter (40 cents/liter) since 2016. The government’s subsidy was the difference between the landing cost and the regulated pump price.

In March, the government cut the gasoline pump price 10% to Naira 130/liter and again to Naira 108/liter in May.

The PPPRA said at the time it had begun fuel price modulation in accordance with prevailing market dynamics and would respond appropriately to any further oil market development.

Nigeria, which typically consumes 1 million mt-1.25 million mt of gasoline per month, saw demand slump with the bulk of the country, including capital Lagos and the federal capital Abuja, in lockdown as a health measure since the end of March. Some restriction have been lifted pushing demand up marginally, though it remains low.

Nigeria imports almost all the gasoline it consumes due to low throughput rates at four state-owned refineries.

Clarity needed on deregulation
The government had been under pressure to carry out the reform.

Major Oil Marketers Association of Nigeria (MOMAN), an industry umbrella body, said the development was a turning point for the downstream oil sector.

MOMAN president Adetunji Oyebanji said it was hoping to get more granular details from the PPPRA and the government on how the deregulation will work once prices rise further.

“There should be a proper legislative framework to guide the deregulation of the downstream sector and protect the interest of private investors,” Oyebanji said.

Nigeria also recently granted approval to private marketers to import gasoline for domestic consumption at market prices in the country’s latest push to liberalize the sector and end subsidies.

NNPC has been Nigeria’s sole gasoline importer since private marketers stopped importing gasoline in the third quarter of 2017, in protest at the government’s refusal to settle about $2 billion in subsidy arrears related to gasoline imports and the continued regulation of domestic pump prices.

Nigeria relies on oil exports for more than 90% of foreign earnings and 50% of of government revenue. As oil prices fell to a record with the coronavirus pandemic, the authorities used the opportunity to end the subsidies that have been in place since the 1980s.

Godwin Okafor

Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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