As the controversies over the restoration or otherwise of the nation’s fuel subsidy regime continue to gain momentum in public discourses over the past few weeks, the Centre for the Promotion of Private Enterprise (CPPEE), a leading private sector advocacy group, has lent its voice to the need to sustain the current non-subsidy regime in the downstream market of the oil and gas industry.
The Centre, in a ‘Policy Brief on Fuel Subsidy’ issued on Sunday and signed by its Director/Chief Executive, Dr. Muda Yusuf, recognized that although the current petrol-price escalation presented a serious cost-of-living, inflation and competitiveness challenge requiring urgent intervention, however, maintained that restoring the pre-reform universal subsidy regime was neither fiscally sustainable nor economically prudent.
Having critically appraised the fiscal, monetary and socioeconomic implications of discontinuing the current non-subsidy regime in the country, the CPPE maintained that rather than discontinuing the current regime, the appropriate policy direction for the Federal Government should be to preserve the downstream petroleum reforms while aggressively mitigating their social and economic costs.
Specifically, the OPS group advocated: “Government should prioritise affordable transportation, reliable electricity, food production, targeted social protection, healthcare, education and support for productive enterprises. Equally important, the fiscal gains from subsidy removal must become more visible in infrastructure, public services and productive investment.
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“There must also be greater transparency and accountability in the utilisation of the additional resources accruing to federal, state and local governments.
“The subsidy debate should therefore move beyond the binary question of whether petrol subsidy should be restored. The more consequential issue is how Nigeria can convert the gains of the reform 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”, the Centre added.
According to the CPPE, the severe pressures arising from the current escalation in petrol prices have increased transportation, logistics and production costs, weakened purchasing power and aggravated the competitiveness challenges facing businesses, especially MSMEs.
It noted that these pressures required urgent policy intervention but stressed that the subsidy debate should not be viewed solely through the lens of pump prices in view of the wider implications for fiscal sustainability, foreign-exchange stability, investment, domestic refining, industrialisation, employment and energy security.
The Centre argued that central policy question remained, therefore, not whether Nigeria should return to the old subsidy regime, but how to preserve the gains of the reform while reducing its social costs and translating the resulting fiscal space into tangible improvements in citizens’ welfare.
On why the old subsidy model was not sustainable, the CPPE recalled that before the reform, Nigeria was spending an estimated $10–$15 billion annually on petroleum-product imports, with significant implications for foreign-exchange liquidity and external reserves.
It maintained that subsidy and under-recovery obligations also absorbed enormous public resources, constrained Federation Account remittances and aggravated fiscal pressures, adding that artificially low domestic prices created incentives for arbitrage and cross-border diversion, resulting in Nigerian public resources effectively subsidising consumption outside the country.
The Centre pointed out that the old regime was, therefore, not merely a subsidy problem but it was a major fiscal, foreign-exchange and resource-allocation problem.
Reflecting on the gains of the subsidy removal by the present administration, the OPS advocacy group noted that the market-based pricing regime had significantly improved the commercial viability of domestic refining, recalling that for decades, administratively suppressed prices and uncertainty over the pricing framework weakened incentives for long-term investment in refining.
The CPPE further clarified: “A competitive domestic refining industry has benefits beyond petrol. It creates opportunities across diesel, aviation fuel, petrochemicals, fertiliser, plastics, chemicals, logistics, storage and maritime services.
“Domestic refining also conserves foreign exchange through import substitution, creates export opportunities and retains refining, engineering, logistics and technical jobs within the Nigerian economy.
“Nigeria’s strategic objective should therefore be to transition from dependence on imported petroleum products to becoming a competitive regional refining and petrochemical hub”, it added.
This is even as the Centre stated that fiscally, the subsidy removal had strengthened revenues available to the three tiers of government, pointing out, however, that higher revenues alone cannot justify the reform as the citizens must see tangible benefits through improved public transportation, electricity, healthcare, education, food security, infrastructure and social protection.
The CPPE expatiated that the issue remained increasingly one of fiscal accountability and expenditure quality, charging the federal, state and local governments to demonstrate transparently how the additional fiscal resources arising from the reform are improving economic and social outcomes.
The CPPE explained that it was 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.
It recalled that before the latest conflict-related escalation in international energy prices, petrol was selling at about N774–N800 per litre after which the prices rose above N1,300 per litre as global energy prices increased sharply amid the Middle East crisis, pointing out that it will, therefore, be incorrect to attribute the entirety of the latest petrol-price increase to subsidy removal.
The Centre stated: “These are two distinct issues: one is a domestic structural reform involving the transition to market-based pricing; the other is an external commodity-price shock. The distinction is important because they require different policy responses.”
