POLICY BRIEF ON FUEL SUBSIDY
PETROL SUBSIDY: PRESERVING REFORM GAINS WHILE PROTECTING CITIZENS
The Centre for the Promotion of Private Enterprise [CPPE] acknowledges the severe pressures arising from the current escalation in petrol prices. Higher fuel costs have increased transportation, logistics and production costs, weakened purchasing power and aggravated the competitiveness challenges facing businesses, especially MSMEs.
These pressures require urgent policy intervention. However, the subsidy debate should not be viewed solely through the lens of pump prices. It has wider implications for fiscal sustainability, foreign-exchange stability, investment, domestic refining, industrialisation, employment and energy security.
The central policy question is 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.
THE OLD SUBSIDY MODEL WAS UNSUSTAINABLE
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.
Subsidy and under-recovery obligations also absorbed enormous public resources, constrained Federation Account remittances and aggravated fiscal pressures. Artificially low domestic prices additionally created incentives for arbitrage and cross-border diversion, resulting in Nigerian public resources effectively subsidising consumption outside the country.
The old regime was therefore not merely a subsidy problem; it was a major fiscal, foreign-exchange and resource-allocation problem.
SUBSIDY REMOVAL HAS STRENGTHENED DOMESTIC REFINING
Market-based pricing has significantly improved the commercial viability of domestic refining. For decades, administratively suppressed prices and uncertainty over the pricing framework weakened incentives for long-term investment in refining.
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.
FISCAL GAINS MUST DELIVER PUBLIC VALUE
Subsidy removal has strengthened revenues available to the three tiers of government. But higher revenues alone cannot justify the reform.
Citizens must see tangible benefits through improved public transportation, electricity, healthcare, education, food security, infrastructure and social protection.
The issue is increasingly one of fiscal accountability and expenditure quality. Federal, state and local governments must demonstrate transparently how the additional fiscal resources arising from the reform are improving economic and social outcomes.
SUBSIDY REMOVAL AND GLOBAL ENERGY SHOCKS SHOULD NOT BE CONFLATED
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.
Before the latest conflict-related escalation in international energy prices, petrol was selling at about ₦774–₦800 per litre. Prices subsequently rose above ₦1,300 per litre as global energy prices increased sharply amid the Middle East crisis. It would therefore be incorrect to attribute the entirety of the latest petrol-price increase to subsidy removal.
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.
RESTORING PETROL SUBSIDY IS FISCALLY UNSUSTAINABLE
The current cost-of-living pressures understandably generate calls for government intervention. However, restoring a universal petrol subsidy would recreate many of the problems the reform sought to address, including fiscal leakage, foreign-exchange pressure, arbitrage, smuggling, pricing distortions and investment uncertainty.
Using an estimated PMS consumption benchmark of 50 million litres per day and an indicative subsidy requirement of ₦1,050 per litre, the potential fiscal exposure would be approximately:
- ₦52.5 billion daily
- ₦1.575 trillion monthly
- ₦19.16 trillion annually — approximately ₦20 trillion
Although actual costs would vary with consumption, crude-oil prices, exchange rates, refinery or landing costs and the regulated pump price. Consumption could also increase under a subsidy regime as price differentials recreate incentives for cross-border diversion.
An annual subsidy bill approaching ₦20 trillion would impose an enormous opportunity cost. It would compete with spending on infrastructure, education, healthcare, security, agriculture and social protection, while potentially widening the fiscal deficit and increasing borrowing and debt-service pressures.
Higher government borrowing could also crowd out private-sector credit, sustain high interest rates and weaken investment, productivity, job creation and economic growth.
Nigeria would therefore risk replacing an energy-price problem with a much larger fiscal, debt, foreign-exchange and investment problem.
TARGETED RELIEF IS THE BETTER POLICY OPTION
The current pressures require urgent and socially sensitive intervention, but relief should address the sources of household vulnerability and high business costs rather than subsidising petrol consumption indiscriminately.
Priority interventions should include:
- Mass transit and logistics: Expand affordable public transportation, rail freight and logistics infrastructure.
- Electricity and alternative energy: Improve grid reliability and accelerate CNG, solar and distributed-energy solutions.
- Food production: Strengthen agricultural security, irrigation, rural infrastructure, logistics and productivity.
- Targeted social protection: Direct support towards vulnerable households.
- Healthcare and education: Improve affordable public provision to reduce major household expenses.
- Productive enterprises: Reduce energy, logistics and financing costs, particularly for MSMEs.
- Domestic refining: Maintain a predictable market-oriented framework that protects investment confidence and supports further refining investment.
These interventions should be a shared responsibility of federal, state and local governments.
CPPE POLICY POSITION
The CPPE recognises that the current petrol-price escalation presents a serious cost-of-living, inflation and competitiveness challenge requiring urgent intervention. However, restoring the pre-reform universal subsidy regime is neither fiscally sustainable nor economically prudent.
The appropriate policy direction is to preserve the downstream petroleum reforms while aggressively mitigating their social and economic costs.
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.
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.
DR. MUDA YUSUF
CEO, CENTRE FOR THE PROMOTION OF PRIVATE ENTERPRISE [CPPE]
13 SEPTEMBER 2026