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Fuel subsidy removal



Sir: Please permit me to contribute to the on-going discussion of fuel subsidy removal in the country. In the review of fuel subsidy editorial report of your paper on July 11, 2019 you stated that the volume of fuel sold by the Nigerian National Petroleum Corporation (NNPC) was 30 million litres per day in year 2012. You want us to give 2017 and 2019 figures as 44 million litres and 56-60 million litres respectively. You even wondered why the sales volume should increase like that when people are complaining that the standard of living has reduced. One would have expected the volume to reduce to 20 million litres instead of increasing to 56 to 60 million litres.

I have no doubt in my mind that the increase is due to smuggling of our products across West African countries. The reason why the volume increase is because our product has become cheaper to the West African countries. This is not in naira money but in other currencies.  The naira has depreciated so much against the CFA, £ and $.

The demand for petroleum is obeying the law of supply and demand. The cheaper the more you will buy. The point now is that we don’t have to remove the subsidy on fuel if only we can get the Naira to be stronger. Let us take an example with CFA that is prepared to spend CFA 100 million in a year. If our currency remains at the same rate, then demand may just remain constant. If naira depreciates by 25% their demand will increase by same ratio using the same CFA 100 million.


A look at the exchange rate of Naira to CFA from 2012 to date clearly explains the point. The irony is that when Naira depreciates the volume of Naira we shall realise in selling crude oil will increase. When Naira remains constant we shall continue to get the same Naira equivalent for our budget that is based on crude oil sales. We know what we do to devalue the Naira. If we do the opposite, Naira will be stronger.

My observation is that fuel subsidy may continue forever and as long as naira keep depreciating. But if we remove subsidy for the last time and then increase fuel price for the last time, we may be heading for stability. The alternative is: Do not remove subsidy but firm up naira to adjust #145 to where it should be in $ or CFA terms.
Dr. J.Olutayo Obadina.

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fuel subsidyNairaNNPC
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