*Urges targeted relief as fuel costs squeeze households, businesses

*’Show Nigerians how resources generated by the reform are improving economic, social outcomes’

CHIEF Executive Officer (CEO), Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, has warned that restoring universal petrol subsidy could cost Nigeria nearly N20 trillion annually, decrying that such a move could worsen the country’s fiscal, debt and foreign exchange pressures.

He however acknowledged the severe economic strain caused by the latest surge in petrol prices, which he said has pushed up transportation, logistics and production costs, weakened household purchasing power and further eroded the competitiveness of businesses, particularly micro, small and medium enterprises (MSMEs).
In a recent policy brief, “Petrol Subsidy: Preserving Reform Gains While Protecting Citizens,” he argued that government should resist the pressure to return to the old subsidy regime and instead deploy true, targeted interventions to cushion Nigerians.

He said the subsidy debate should go beyond pump prices, given its implications for fiscal sustainability, FX stability, investment, domestic refining, industrialisation, employment and energy security.

According to him, Nigeria’s previous subsidy model was unsustainable, with the country spending an estimated $10 to $15 billion annually on petroleum product imports before the reform.

He noted that subsidy and under-recovery obligations also absorbed enormous public resources, constrained Federation Account remittances and intensified fiscal pressures.

The artificially low domestic petrol prices, he added, created incentives for arbitrage and cross-border diversion, effectively allowing public resources to subsidise fuel consumption outside the country.

“The old regime was therefore not merely a subsidy problem; it was a major fiscal, FX and resource-allocation problem,” he stated.

He further noted that the removal of subsidy has improved the commercial viability of domestic refining, arguing that administratively suppressed prices and uncertainty over the pricing framework has discouraged long-term investment in refining for decades.

He pointed out that a competitive refining industry would create opportunities not only in petrol but also in diesel, aviation fuel, petrochemicals, fertiliser, plastics, chemicals, logistics, storage and maritime services.

Beyond reducing dependence on imports, domestic refining, he said, would conserve FX through import substitution, create export opportunities and retain refining, engineering, logistics and technical jobs within the local economy.

He said Nigeria should ultimately seek to transform itself from an importer of petroleum products into a competitive regional refining and petrochemical hub.

However, he reiterated that the additional revenue accruing to the three tiers of government following subsidy removal must translate into visible benefits for citizens. Higher government revenues could not, on their own he said, justify the reform and insisted that Nigerians must see improvements in public transportation, electricity, healthcare, education, food security, infrastructure and social protection.

Noting that the issue is increasingly one of fiscal accountability and expenditure quality, he challenged governments at all levels to demonstrate transparently how additional resources generated by the reform are improving economic and social outcomes.

Cautioning against blaming the entire recent increase in petrol prices on subsidy removal, he said petrol sold for about N774 to N800 per litre before the latest conflict-related escalation in international energy prices, but subsequently rose above N1,300 per litre as global crude oil and refined-product prices increased sharply amid the Middle East crisis. He said the distinction is important because subsidy removal and the global energy-price shock are separate developments requiring different policy responses.

“One is a domestic structural reform involving the transition to market-based pricing; the other is an external commodity-price shock,” he said.

On the growing calls for a return to subsidy, he said the policy would recreate the very problems the reform was designed to eliminate, including fiscal leakage, FX pressure, arbitrage, smuggling, pricing distortions and investment uncertainty.

Using a PMS consumption benchmark of 50 million litres per day and an indicative subsidy requirement of N1,050 per litre, he estimated that reinstating subsidy could expose government to a bill of about N52.5 billion daily, N1.575 trillion monthly and approximately N20 trillion annually. He further warned that consumption would increase under a subsidy regime because renewed price differentials encourage cross-border diversion.

He warned that a N20 trillion annual subsidy bill would come with a huge opportunity cost for the economy, competing with government expenditure on infrastructure, education, healthcare, security, agriculture and social protection as well as widen the fiscal deficit and increase borrowing and debt-servicing pressures.

Higher government borrowing, he added, could crowd out private-sector credit, sustain high interest rates and weaken investment, productivity, job creation and economic growth.

“Nigeria would therefore risk replacing an energy-price problem with a much larger fiscal, debt, FX and investment problem,” he warned.

Rather than subsidise petrol consumption across the board, he called for targeted measures to reduce the pressures facing households and businesses. He urged government to expand affordable mass transit, rail freight and logistics infrastructure, improve grid reliability and accelerate the deployment of CNG, solar and other distributed energy solutions.

He also called for stronger agricultural production through improved agricultural security, irrigation, rural infrastructure, logistics and productivity.

For households, he advocated targeted social protection, while urging improvements in affordable public healthcare and education to reduce major household expenses. He further called for measures to lower energy, logistics and financing costs for enterprises, especially MSMEs.

On refining, he urged government to maintain a predictable, market-oriented framework capable of protecting investor confidence and encouraging further investment in domestic refining capacity.

He further maintained that the current petrol-price escalation represented a serious cost-of-living, inflation and competitiveness challenge requiring urgent intervention. However, restoring the pre-reform universal subsidy is neither fiscally sustainable nor economically prudent, he stressed.

He called instead for government to preserve the downstream petroleum reforms while aggressively mitigating their social and economic consequences and also demanded greater transparency and accountability in the utilisation of the additional resources accruing to governments at all levels from subsidy removal.

He said the debate should consequently move beyond the simple question of whether petrol subsidy should return, arguing that the bigger challenge was how Nigeria could convert reform gains into lower structural costs, stronger domestic production, improved competitiveness, greater energy security and measurable improvements in citizens’ welfare.

“That is the pathway to making the reform economically sustainable and socially defensible,” he said.