Fuel Subsidy: How fuel marketers are making billions at the expense of Nigerians

• Fuel Subsidy Removal
• A Political Tool That Impedes Nigeria’s Development
• The paradox of the whole arrangement
• Removal Of Subsidy and Reactions

Nigeria, a nation that significantly depends on oil for its economic stability, has a serious problem with petroleum pricing. But in order to make fuel prices reasonable for citizens and to promote economic growth, the government introduced fuel subsidies.

The fuel subsidy was introduced in Nigeria in the 1970s in order to mitigate the effects of rising global oil prices on the Nigerian people. The subsidy was initially intended to be a temporary measure, but it has since become a permanent fixture of the Nigerian economy.

In 2012, the Nigerian government led by former President, Goodluck Ebele Jonathan, made an attempt to remove the fuel subsidy, but the move sparked widespread protests and was eventually reversed. The government has since made several attempts to reform the fuel subsidy regime, but these efforts have been unsuccessful.

Fuel Subsidy Removal

On May 29, 2023, newly inaugurated Nigerian President Bola Ahmed Tinubu eliminated the fuel subsidy. This led to a sharp increase in the price of fuel and long queues at filling stations across the country.

The elimination of the fuel subsidy can lead to higher prices and shortages if participants are not allowed to source products independently. This is because increased competition will force sellers to lower their prices in order to attract customers. However, if participants are allowed to source products independently, the product’s availability will increase and prices will decrease.

In order to avoid the problems that occurred in Nigeria, it is important to ensure that participants are allowed to source products independently when fuel subsidies are eliminated. This will help to ensure that the product’s availability increases and prices decrease.

Fuel Subsidy: A Political Tool That Impedes Nigeria’s Development

The Nigerian government has been subsidizing petrol for many years, which means that it pays the difference between the price that consumers in Nigeria pay at the pump and the price that is set by the international market. This policy was first implemented to lower the cost of petrol for Nigerians, but it has subsequently turned into a significant financial burden for the government.

GlobalPetrolPrices.com estimates that the average price of petrol worldwide as of March 8, 2023, is $1.28 per litre, or about N590.40 in Naira. However, the Nigerian Government subsidized the product and fixed the price at N194, making the total amount of subsidy per litre N396.

In Nigeria, 60 million liters of petrol are consumed on average each day. However, product marketers load up on up to 100 million liters and more each day.

This implies that the Nigerian government must provide a daily subsidy of up to N396 x 100,000,000 (litres) to the product’s marketers in order to maintain prices at N194, for example. This raises the totals to nearly N1.1 trillion each month and N39.6 billion daily. Please be aware that this sum may change depending on how much gasoline costs on the global market.

Therefore, try to visualize it in your mind and figure out how much Nigeria spends annually on fuel subsidies alone.

Here’s the paradox of the whole arrangement

It is common knowledge that Nigerian oil marketers move cheap petrol to neighboring countries where they resell it for higher prices. The practice which is known as “petrol smuggling” this habit has long been a significant issue for the Nigerian government.

In 2011, a parliamentary investigation found that fuel marketers had taken advantage of government subsidies to the tune of $6.8 billion over three years. The investigation also found that some fuel marketers were colluding with each other to fix prices and manipulate the market.

Fuel smuggling is a practice used by petroleum marketers for a variety of purposes. One justification is that they stand to gain significantly from doing so. Petrol is subsidized by the Nigerian government, which implies that it is sold for less than it costs to produce. This lowers the price of petrol for Nigerian consumers, but it also means that the government loses money on each liter of petrol sold. The price of fuel on the international market, which is far more than the subsidized price in Nigeria, is what petroleum marketers who smuggle it to neighboring countries can sell it for. This enables them to generate a sizable profit.

Due to the fact that there are fewer leftovers than the country’s daily use, the product is now rather uncommon in Nigeria. The implication is that gasoline prices at gas stations will be somewhat higher than the fixed price of N194 (some sell for N200, N205, N225, N250, and so forth depending on the locality). Furthermore, Nigerians continue to purchase the same fuel at subsidized prices as high as N400, N500, or even N800 during peak moments of shortages that are also engineered by the marketers while camped out at gas stations, as was the case in the first quarter of this year. Marketers profit twice again.

Marketers also import more than the daily average of 60 million liters as shown above and continue to demand that the federal government pay subsidies on the excesses, which are typically included in the goods they smuggle to neighboring nations. Once more, marketers deceive Nigeria.  The Nigerian government’s efforts to make fuel more inexpensive for its citizens are ruined by this current situation.

Removal Of Subsidy and Reactions

Therefore, after observing the blatant exploitation of the subsidy scheme, succeeding federal governments have always sought to repeal it so that market forces can set the price of petrol.

Additionally, the enormous sum of money that is paid to marketers can be used for other worthwhile endeavors like the development of infrastructure, agriculture, social security, technology, health, etc.

However, the Marketers are quick to close down their filling stations and deny Nigerians access to the already-subsided petroleum in their possession whenever an effort to withdraw the subsidy is made. This causes an immediate regime of shortage and hardship.

And while the marketers increase their profits on the one hand, the misery they cause on the other hand forces and incites Nigerians against the federal government. Innocent Nigerians who don’t get the politics of subsidies then go on strike, blame the government, and pressure it to maintain the subsidy system. Over time, we end up paying more for our ignorance.

The marketers are content since they still rank first among African billionaires. They are adored, admired, and celebrated by everyone. While doing so, the federal government counts its losses, endures insults, carries a terrible reputation, and feels sorry for ignorant and suffering Nigerians like you and me.

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