Nigeria’s Costly Fuel Subsidies Back After Crude Price Spike

Nigeria is keeping the pump price of gasoline unchanged in March despite increasing crude costs, indicating that the nation’s costly fuel subsidies are back.

Prices will remain the same in “order not to jeopardize ongoing engagements with organized labor and other stakeholders on an acceptable framework that will not expose the ordinary Nigerian to any hardship,” Kennie Obateru, spokesman of the state-owned Nigerian National Petroleum Corp., said in a statement Monday. It is the third straight month that prices haven’t moved.

Nigeria used the collapse in oil prices last year to remove subsidies on fuel that made the product one of the cheapest globally. Minister of State for Petroleum Resources Timipre Sylva said in September Nigeria expected to save as much as one trillion naira ($2.4 billion) a year after abolishing the support that the state has provided since the 1980s.

With food inflation at a 12-year high, Africa’s largest crude producer now risks a backlash if it allows fuel costs to go up in line with the rebound in crude in international markets. Labor unions have warned of protests if increases are announced after prices were allowed to rise several times in the second half of 2020. They have remained steady since early December, even though oil is trading 35% higher at $65 per barrel.

The NNPC is the sole gasoline importer in the country and is taking the hit by not increasing the price at which it sells to the firms that distribute the fuel around Africa’s most-populous nation.

The pump price of gasoline should be about 200 naira per liter, compared to just over 160 naira per liter that it retails at, according to Tunji Oyebanji, the chairman of the Major Oil Marketers Association of Nigeria and chief executive officer of 11 Plc, a large operator of filling stations.

“I don’t see how NNPC can survive if it has to finance that kind of gap,” Oyebanji said in a speech on Feb. 25.

Nigerian spent 10.7 trillion naira on fuel subsidies in the last 10 years, including 750 billion naira in 2019, according to Oyebanji. The NNPC could pass these costs as extra income on to the government if customers paid market-driven prices for gasoline, supporters of deregulation have argued.

Raising pump prices is politically risky for Nigeria’s leaders. For decades, the government has intervened in the market to ensure the public can purchase cheap fuel – widely considered the single dependable advantage from the country’s misspent oil wealth.

Queues of vehicles formed outside filling stations in Lagos, Abuja and other cities late last week, an indication that the NNPC could be running low on stocks. This often occurs when the cost of subsidies become unbearable for the government.

The NNPC warned “marketers”, the firms that buy gasoline from the company and sell to consumers, not to hoard the product. There is “enough stock of petrol to keep the nation well supplied for over 40 days,” the NNPC said.