Nigeria reinstates fuel subsidies to avert further shortages


Nigeria’s government has reinstated fuel subsidy to avert further fuel crisis that plagued the country throughout the festive season.

The petroleum ministry had scrapped long standing fuel subsidy in May 2016 saying it could no longer afford it

At last Nigeria’s most Nagging problem is gone. Motorists now drive in and out to buy petrol without delays.

It’s a stark contrast of what we saw here last week, queues for fuel stretched for kilometers and motorist spent hours to get fuel.

The crisis was a result of stalemate on whether to raise fuel prices or maintain the current pump prices.

The government stood its ground and refused to allow price hike and instead walked back on its earlier policy to end fuel subsidy, penalising those caught hoarding fuel.

The government fears an increase in fuel prices will drive up inflation-Something an economy emerging from a recession cannot afford.

“What I’ll recommend is government set a threshold which anything below the threshold government bears the subsidy because of the economic effects it would have but at some point any price movement above that threshold, government should put in place a structure to pass on that price movement. So people are ready… they can prepare for those price movement. On a long term basis the ideal thing is to fully deregulate so in other words you have a dynamic changes in prices so when crude oil prices go up everybody automatically knows that it would reflect in the pump price here and people can adjust” Odion Omonfoman, an energy analyst said.

Nigeria is Africa’s biggest producer of crude oil but it imports unto 90% of the fuel consumed locally.

It has four refineries but all of them are dated and suffer frequent breakdowns.

The petroleum ministry wants to revamp them and also and license more private ones.

The idea is to refine enough fuel not just for the local market but exports as well.

“Domestic refining would help us is that it would always give us supply. Supply is so critical. Take for instance this recent scarcity. Part of it was because of a shortfall people sensed NNPC may not be able to meet supply to the market and they started to hoard. Once you know that there’s a refinery at the back that’s always refining, always has products then you won’t have scarcity and whist that means is that people would not be prone to board PMS product because of a shortfall in importation. Those are some of the advantages I see in having domestic refining capacity” Omonfoman said.

The current increase in cost of fuel imports is attributed to gains in crude oil prices and hurricane Harvey that cut output of refiners in the US.

The NNPC imports up to 80% of the 35 million litres of petrol consumed daily, by reinstating fuel subsidy, It will now have to fork out over $2 million daily or a $1 billion plus a year to keep pump prices at about 40 cents of a dollar.