March 1, 2021

Africa

NIGERIA: Fuel subsidy makes a comeback

BY Malte Liewerscheidt

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( 3 mins)

On 1 March, the state-owned Nigerian National Petroleum Corporation (NNPC) announced that domestic fuel prices would remain fixed in March, despite the ongoing oil price rally. Echoing a similar statement in February, today‘s announcement provides the latest indication that the fuel price subsidy, which was ostensibly abolished in March 2020, is back as predicted. Inflation is persistently high, the security situation is deteriorating and the middle class remains agitated following the #endSARS protests. Against this background, the government deems the fiscal damage done by subsidizing fuel the lesser evil compared to the public backlash it fears in the case of price increases, particularly as the 2023 general election looms on the horizon.

In its press release, NNPC also “cautioned petroleum products marketers not to engage in arbitrary price increase[s] or hoarding of petrol in order not to create artificial scarcity and unnecessary hardship for Nigerians.” This seems to flatly contradict a September 2020 statement by Minister of State for Petroleum Resources Timipre Sylva that the government was “no longer in the business of fixing” fuel prices. In March 2020, the government had announced that it had ended subsidizing fuel.

While the government indeed allowed moderate price increases between June and November, it has changed gears since. This started with a surprise NGN 5 reduction per liter in December, which was arguably aimed at placating the middle classes in the aftermath of the #endSARS protests. While international oil prices have continued their price rally since, local pump prices have remained fixed. Meanwhile, consumer price inflation has surged to 16.5% year-on-year as of January, driven not least by foreign exchange shortages, restrictive trade policies and lingering security challenges in Nigeria’s food producing regions. The latter have also come into the spotlight due to multiple mass kidnappings of school children across northern Nigeria since December, which should be taken as further signs of the increasing erosion of law and order across large swathes of the country.

Against this background, and with the February 2023 general elections already on the horizon, the government seems to have concluded that it can ill afford any major fuel price increases. For how long it can afford subsidizing fuel remains the open question, though. The subsidy has long been removed from the federal budget and moved onto the notoriously opaque books of NNPC, the sole fuel importer. According to Reuters, NNPC may have been subsidizing fuel at NGN 30 (USD 0.08) per liter as of February. At an estimated daily consumption of 40mn liters, a back-of-the-envelope calculation suggests NNPC may be burning NGN 1.2bn (USD 3.2mn) every day this way. Needless to say, such spending priorities do not chime with those of the World Bank, which Abuja approached back in April 2020 for a USD 1.5bn budget support loan.

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