The Federal Government could face an annual petrol subsidy bill of nearly N20 trillion if it returns to the former universal subsidy regime, the Centre for the Promotion of Private Enterprise has warned.
The CPPE said the return of the universal petrol subsidy would reverse gains from the downstream petroleum sector reforms and place additional pressure on government finances.
In a policy brief titled “Petrol Subsidy: Preserving Reform Gains While Protecting Citizens,” the organisation acknowledged that rising petrol prices had increased transportation, logistics and production costs, putting pressure on households and businesses.
CPPE estimated that the government could spend about N52.5 billion daily, N1.575 trillion monthly and N19.16 trillion annually if it subsidised petrol at N1,050 per litre, based on an indicative consumption level of 50 million litres per day.
The organisation said the actual cost would depend on factors including petrol consumption, crude oil prices, exchange rates, refining or landing costs and the regulated pump price.
It warned that an annual subsidy bill approaching N20 trillion would create a major opportunity cost for the country.
“An annual subsidy bill approaching ₦20 trillion would create a huge opportunity cost, competing with spending on infrastructure, education, healthcare, security, agriculture and social protection,” the CPPE said.
It added that increased government borrowing to finance the subsidy could widen the fiscal deficit and increase debt-service costs.
“Higher borrowing could also reduce the availability of credit to businesses, sustain high interest rates and weaken investment, productivity, job creation and economic growth,” it said.
The organisation warned that Nigeria could end up replacing an energy-price problem with a broader fiscal and economic challenge.
“Nigeria would therefore risk replacing an energy-price problem with a much larger fiscal, debt, foreign-exchange and investment problem,” it said.
The CPPE also cautioned against attributing the recent rise in petrol prices solely to the removal of subsidy.
It said petrol had been selling for about N774 to N800 per litre before the latest increase in global energy prices but subsequently rose above N1,300 per litre as crude oil and refined-product prices increased amid the Middle East crisis.
The organisation said the two developments should be considered separately because they require different policy responses.
“It is analytically important to distinguish the structural price adjustment arising from subsidy removal from the more recent increase caused by global crude-oil and refined-product price shocks,” the CPPE said.
According to the group, this distinction is important in determining appropriate government intervention.
The organisation also warned that restoring universal subsidy could revive fuel smuggling and cross-border diversion.
It said artificially low domestic petrol prices had previously encouraged arbitrage, with subsidised products moved across Nigeria’s borders for sale in neighbouring countries.
“The old regime was therefore not merely a subsidy problem; it was a major fiscal, foreign-exchange and resource-allocation problem,” the CPPE said.
It added that Nigeria had previously spent an estimated $10 billion to $15 billion annually on petroleum-product imports, putting pressure on foreign exchange liquidity and external reserves.
According to the organisation, subsidy and under-recovery obligations also consumed significant public resources and reduced funds available to the three tiers of government.
The CPPE said market-based petrol pricing had improved the commercial prospects of domestic refineries after years of uncertainty discouraged investment.
It urged the government to maintain a predictable policy framework that would encourage further investment in Nigeria’s refining and petrochemical industries.
The organisation said stronger domestic refining would create opportunities beyond petrol production, including diesel, aviation fuel, petrochemicals, fertiliser, plastics, chemicals, logistics, storage and maritime services.
It added that increased refining capacity could reduce petroleum-product imports, conserve foreign exchange, create export opportunities and retain technical and engineering jobs within Nigeria.
The CPPE therefore urged the government to position Nigeria as a competitive regional refining and petrochemical hub.
