CPPE warns against bringing back petrol subsidy, suggests targeted support

The Centre for the Promotion of Private Enterprise (CPPE) has warned against bringing back the petrol subsidy. They say the policy is not sustainable, even with the rising petrol prices causing economic stress.

In a policy brief signed by Muda Yusuf, the Chief Executive Officer, CPPE said the recent rise in petrol prices has made transport, logistics, and production costs higher. This has hurt consumers’ ability to buy goods.

The group pointed out that the increase in fuel prices has also made it harder for businesses to compete, especially for micro, small, and medium enterprises (MSMEs).

CPPE's warning comes as some people call for a return to fuel subsidy. Former Vice-President Atiku Abubakar has promised to restore a targeted petrol subsidy if he wins the 2027 election.

The organisation stated that the debate about subsidies should not just focus on petrol prices. They argue it has bigger implications for Nigeria’s economy, stability in foreign exchange, investment, local refining, job creation, and energy security.

“The main question is not whether Nigeria should go back to the old subsidy system, but how to keep the benefits of the reform while cutting social costs and improving citizens’ welfare,” CPPE said.

They noted that Nigeria used to spend about $10 billion to $15 billion each year on importing petrol before the subsidy reforms happened.

The think tank explained that subsidies and related costs took a lot of public funds, limited money going to the Federation Account, and increased financial pressure.

CPPE said that keeping petrol prices artificially low also led to fuel being diverted across borders, meaning Nigerian money was used to subsidise fuel for other countries.

“The old system was not just about subsidies; it created major financial, foreign-exchange, and resource allocation issues,” the think tank added.

The group said switching to market-based petrol pricing has made local refining more viable by encouraging more investment in that area.

They believe a competitive local refining industry could create many opportunities beyond just petrol, like in diesel, aviation fuel, petrochemicals, fertilisers, and logistics.

“Local refining saves foreign exchange by reducing imports, opens up export chances, and keeps jobs in refining, engineering, and logistics in Nigeria,” CPPE said.

They urged Nigeria to move from relying on imported petrol to becoming a strong regional refining and petrochemical hub.

CPPE recognized that removing the subsidy has increased the revenue available to federal, state, and local governments. But they said just having higher revenue isn’t enough to justify the reform.

“Citizens need to see real benefits like better public transport, power supply, healthcare, education, food security, infrastructure, and social support,” they added.

The group said the focus should now be on financial responsibility and how the government spends money.

CPPE called on all levels of government to show clearly how the extra money from the reforms is being used to improve the economy and people’s lives.

They also noted that the price increase from removing the subsidy should not be mixed with other recent price hikes due to global crude oil prices.

As CPPE explained, petrol prices were about N774 to N800 per litre before the latest rise in international energy prices. Prices then climbed above N1,300 per litre due to sharp increases in global energy prices linked to the crisis in the Middle East.

“It is wrong to say the whole petrol price rise is because of subsidy removal,” the organisation said.

They described the two situations as different issues needing different responses: one is a local reform to market pricing, and the other is a global price shock.

CPPE warned that bringing back a universal petrol subsidy could bring back the financial and foreign-exchange problems that led to the reform.

Using a petrol consumption estimate of 50 million litres daily and a subsidy need of N1,050 per litre, they said the potential subsidy could reach about ₦152.5 billion each day, N1.575 trillion monthly, and about N19.16 trillion yearly.

They called this an annual burden of around N20 trillion, noting that the actual cost would depend on factors like consumption, crude oil prices, and the regulated pump price.

CPPE also cautioned that consumption might rise again if a subsidy is reintroduced, as price differences could encourage cross-border fuel diversion.

“A subsidy bill near N20 trillion would carry a huge opportunity cost,” they said.

According to the organisation, such spending would compete with funding for infrastructure, education, healthcare, and security. They warned it could widen the fiscal deficit and increase borrowing and debt pressures.

They further warned that more government borrowing could limit private-sector lending and raise interest rates, hurting investment, job creation, and economic growth.

“Nigeria could end up swapping an energy price issue for a bigger financial, debt, and investment crisis,” CPPE said.

Instead of bringing back the petrol subsidy, the group suggested the government should provide targeted help to reduce costs for households and businesses.

They recommended improving affordable public transport, rail logistics, and electricity supply. They also suggested advancing compressed natural gas, solar energy, and better agricultural security and infrastructure.

CPPE called for support for vulnerable households, better healthcare and education, and measures to lower energy and logistics costs for businesses, especially MSMEs.

They urged the government to keep a clear and market-friendly approach for the petroleum sector to build investor trust and support more investment in local refining.

“The right policy is to maintain the downstream reforms while tackling their social and economic costs,” the organisation said.

CPPE said the financial benefits from removing the subsidy should be clearer through better infrastructure and public services, with more transparency and responsibility in how extra revenues are used.

“The subsidy debate should go beyond whether to bring back the petrol subsidy.

“The real question is how Nigeria can turn the benefits of the reform into lower costs, stronger local production, better energy security, and real improvements in people’s lives,” they concluded.

Nigeria ended the petrol subsidy in May 2023 after President Bola Tinubu announced on May 29 that “the fuel subsidy is gone.”

This announcement ended the government's previous subsidy system, leading the Nigerian National Petroleum Company Limited (NNPC Ltd) to change pump prices nationwide in June 2023. The reform aimed to lessen the government’s financial burden from subsidising petrol.