The Political Somersaults on Petrol Subsidy
Postscript by Waziri Adio
Let me say this upfront: there was the need for a swift and consequential policy response by the President Bola Tinubu administration to mitigate the predictable negative effects of the global energy crisis on Nigerian households and small businesses. The reasons were obvious enough. Most Nigerians were still reeling from reform-induced high prices and their country, as an oil-producer, stood to reap some windfall (no matter how small) from the increase in oil prices arising from the after-shocks of the US-Israel war on Iran.
The Tinubu government missed a trick by not isolating the oil windfall and by failing to use at least a part of it to provide concrete and meaningful reliefs to most Nigerians who have had to endure a concentrated and lingering cost-of-living crisis since the removal of petrol subsidy and the depreciation of the Naira in mid-2023. This built on an earlier error of not isolating savings from petrol subsidy removal and earmarking some part of it to a relief programme that is visible to all and easily trackable. The administration is about committing a third avoidable error: commencing the reversal of the removal of petrol subsidy, its signature reform that has significantly contributed to fiscal stability and, in a way, boosted energy security.
It is equally important to state upfront that the issue is not about whether reliefs should be offered or not. This set of reliefs should have been rolled out at least six months ago, and the government did not need to borrow or struggle to find the extra money for them. It just needed to use some of the oil windfall to cushion the effect of the energy shock on the vulnerable. I argued this position on this page on 22 March 2026 in a piece titled “The Oil Windfall This Time.” The issue is also not about ideological opposition to subsidy or about not expecting the government to respond to electoral pressures. My issue is that government’s response is as wrong-headed as the position of the opposition candidates who were previously in support of subsidy removal.
The Minister of Finance, Mr Taiwo Oyedele, made a passionate case for why petrol subsidy must not be reversed on Thursday, then announced some measures that effectively translate to restoring petrol subsidy. In addition to his speech at the press conference, Oyedele issued a statement on Friday and appeared on a TV interview programme to provide further clarification. The national oil company and some presidential spokespersons have also chimed in. It is not subsidy, they say. It is margin discount and price modulation, they insist. The more clarification they provide, the more unconvincing they sound.
Oyedele disclosed ten things that the government is doing or considering implementing, but only three stand out for me. One, NNPCL will sell petrol at discounted price for one month at the first instance in its filling stations, with “priority to public transporters.” Oyedele and others have said NNPCL would absorb the cost in reduced margins, that the increase in demand might even offset the cost of the discount, and that it would not affect the dividends to the Federation from the national oil company (as if the company has been paying dividends anyway). Most crucially, they also said the reduced or eliminated margin is not subsidy because it has no revenue or budget implication for the government. It is rich that such an argument could issue from the finance minister. Suffice to say that the discount is not cost-free in any way and that NNPCL is owned 100% by the Federation. Anyone with a faint familiarity with the history of the national oil company will never put NNPCL in such a tempting situation. Prioritising transporters assumes that the transporters will automatically pass on the benefits of the discounted petrol to commuters in reduced fares and making the discount time-bound suggests that even this N66 per litre discount can be stopped two months to a tight general election. It is doubtful both assumptions will hold.
The second and third standout interventions are linked: forward sale of crude to local oil refiners and price modulation (which, by the way, was into the petrol pricing lexicon in 2016 by Dr. Ibe Kachikwu when he was the Minister of State for Petroleum). Forward sales would ensure price stability for the oil refiners and is thus not a bad idea with the hope that they will transfer the stability to consumers. This might just end up as a transfer of surplus. Price modulation is intended to keep the refiners honest but it is at best a price cap which can turn into a form of price control. The potentially negative impact of price control on supply and price is well known.
Oyedele said: “The government is negotiating a ceiling of N1,350 a litre on the ex-gantry or landing cost of petrol, to keep pump prices stable. Where costs rise above the ceiling, refiners and importers will carry the shortfall and recover it later, when crude prices or the exchange rate allow, without breaching the ceiling. This is neither a subsidy nor a price control: it is designed to smooth prices over time rather than suppressing them.”
There is a lot to unpack here. First, the operative word is “negotiating.” Why do you need to announce what is not yet finalised? Second, this only kicks in when the ex-gantry price or the landing cost goes above N1,350. The ex-gantry price or landing cost is not the final price paid by consumers. The retailers will still add their margins. This modulation is to ensure that the wholesale price does not go beyond N1,350 per litre and that when the price goes above that cap, the refiners and importers are expected to absorb the difference until when they can recoup their previous loss.
This is where it starts getting interesting. Why should the refiner or importer bear the difference? What happens if ex-gantry price or landing cost stays elevated above N1,350 per litre for a long time, say a year or more? You are basically asking them to give credit without interest and without certainty of time to consumers because government has decreed it. And when the landing cost falls below N1,350 per litre, how do you monitor how much should be recouped by the refiners and importers or how they will spread out the recovery? And when refiners and importers are made to sell below cost, how can you say that is not subsidy or price control?
It is also worth stating that we have been here before, just that the last time we were honest enough to call it by its plain name: subsidy. In January 2006, the Federal Government established the Petroleum Support Fund (PSF), managed by the Petroleum Products Pricing Regulatory Agency (PPPRA) in coordination with the Petroleum Equalisation Fund (PEF), both of which are now defunct. The PSF was designed to stabilise the price of petrol, with the shortfall funded by the three tiers of government. The subsidy scheme cost N257.36 billion or about $2 billion in 2006. It is public knowledge how that experiment ended, but suffice to restate that in 2011, we appropriated N240 billion for petrol subsidy while we spent at least N1.7trillion (I deliberately used at least because the parliamentary investigation put the final cost at N2.59 trillion).
The Oyedele iteration is asking the refiners and importers, and not the government, to bear the shortfall this time. Shifting the burden might be seen as a safeguard. But who sets up a business to absorb avoidable loss with the hope of recouping it later? How realistic is this proposal and at what cost? Why will a company that is located in an export free zone refining and selling a globally competitive product be the one to bear the shortfall and why should importers continue to commit their valuable capital to import to sell below cost? Who monitors the shortfall and what prevents the monitors and the entities being monitored from colluding? Assuming such monitoring capacity exists, is this a good use of state capacity? And if the refiners and the importers refuse to play ball, what can you do and where do you end up? With NNPCL in its sweetest spot as the sole importer?
Beyond these issues, the most critical thing is that the announced interventions are unlikely to move the needle in terms of the costs of transport, food and other essential things that most Nigerians still struggle with. The interventions are at turns tokenistic and problematic. They could use more rigour. Alhaji Atiku Abubakar, who set the tone on the petrol subsidy debate, has had so much fun pooh-poohing the measures announced by the Tinubu administration. Atiku has succeeded in turning petrol subsidy to the main campaign issue of the 2027 presidential election cycle. Since he offered to restore the subsidy during an interview on August 19, every other presidential candidate has had to respond to the politically attractive but fiscally reckless proposal by the flagbearer of the African Democratic Congress (ADC). Clearly, the issue must be polling well.
Mr Peter Obi, the candidate of the Nigeria Democratic Congress (NDC), initially said he would not restore the subsidy but would manage the gains and the process better. In a recent interview with BBC, he walked that back, saying he would tackle the corruption first, then restore the subsidy. The idea of tackling the corruption of subsidy by touting personal integrity is not new. We all know what happened the last time. It is better to eliminate the perverse incentives for corruption than rely on the body language of one man, even if he is an “in-charge” president.
Mr Donald Duke, the candidate of the Peoples Redemption Party (PRP), upped the ante when he offered to reduce the price of petrol to N300 per litre. He said he would offer 600, 000 barrels of crude oil to local refiners, then sell the remaining one million barrels per day. It is comically sad that Duke does not know or pretends not to know that not all the oil produced in the country belongs to the Federation. Yet he was a governor who received money from the Federation Account to run his state for eight years. It goes to show that many in top leadership position know quite little about the operation of the oil sector that used to be the mainstay of the economy or of the Federation Account.
On his part, Tinubu swiftly dismissed Atiku’s proposal but the policy measures by his government fall in the same mould, even if it has more meat. Atiku’s proposal is not the genius idea that the former Vice President thinks it is, as I wrote here on 23 August in an article titled “Back to the Petrol Subsidy Question.” Atiku and his team have said he is promising something new, which is “production subsidy”, and that he would “follow the barrel.” This word-play may fool the uninitiated or those who have not been paying enough attention to our oil sector.
Atiku has a right to flip-flop on petrol subsidy. But there is nothing new in production subsidy. That was what we did when our four refineries were still working and even the military governments found it difficult to police the subsidy regime or contain its suffocating pressure on the country’s finances. Assuming that the problem with petrol subsidy in Nigeria will be fixed by where the subsidy happens is an extravagant assumption. For one, it does not eliminate the cost. Atiku has not disclosed the cost of his proposal, the implication of this for the still fragile finances of the three tiers of government, what the trade-offs will be, where he will find the barrels, and how he will address unintended consequences. The onus is on him to further elevate the debate by showing the details.
Without a doubt, Nigeria needed the bold reforms implemented by Tinubu. These reforms have dragged the country from the edge of the precipice to a stable ground. For instance, Nigeria reaped more of the burdens than the benefits of the global energy crisis that followed Russia’s invasion of Ukraine in 2022. Nigeria suffered high prices, was the only oil producing country that did not earn a windfall from oil prices that went as high as $139, and ended up with a record petrol subsidy bill of $10 billion. In 2026, when another global energy crisis came calling, Nigeria was in a more resilient position. It had eliminated petrol subsidy (which allowed local refiners to come on stream and be competitive) and is in a position to earn an oil windfall.
But the macro stability restored by the reforms has been at a high cost at the micro level, the kind not experienced in generations. The Tinubu administration has not covered itself in glory in taking seriously the predictable consequences of implementing difficult reforms by providing adequate and coordinated succour from the gains of the reforms to the generality of Nigerians, especially the most vulnerable. The pass-through of the shock from the Middle East provided a second chance, especially because it also came with the promise of a windfall.
The oil price benchmark in our 2026 budget is $64.85 per barrel of crude oil. Brent crude has sold for an average $93.77 per barrel since February 28 when the US and Israel started the war in Iran. That means that we should have earned about $29 more than we had budgeted for each barrel of oil belonging to the Federation. Yes, our oil production has been below the production benchmark of 1.84 million barrels per day and not all the barrels belong to the Federation. But isolating the windfall and earmarking portions of it to provide succour to citizens would have served all concerned better. Not that it would have totally eliminated the appeal of populism but most Nigerians would have coped better with the shocks.
It is important to protect these reforms, otherwise Nigeria would soon be back on the fiscal brink (which will make the poor even more vulnerable) and all the suffering would have been for nothing. But part of the programme for protecting the reforms will be to consciously expand the constituency for reforms by reducing the burden on the citizens, especially the poorest. Providing targeted reliefs to Nigerians in ways that will directly bring down the prices of food, transport, medication etc., is the way to go.
The policy levers for doing this can include a six-month duty waiver on key food items that we don’t produce enough of, voucher-based subsidised inputs for farmers, subsidised public transport, energy vouchers to civil servants, diesel vouchers transporters and small businesses, and one-off cash transfers to the vulnerable possibly through the states. These subsidies will be at a cost to government in either forgone or diminished revenue, will be protested by some, and will not be distortion-free. But the cost can be capped, the sharp practices can be contained, and the benefits can go directly to address the most pressing needs of households and firms.