Page 7 - Nigeriaone mag 2 edition en

Managing fuel subsidies is becoming a real concern as oil price

continues to rise

A man at a gas station, illustrative image

As per President Muhammadu Buhari in a letter to increasing subsidy is an artificial holding down of
lawmakers, Nigeria’s petrol subsidies could cost up fuel price which in turn makes Nigeria the West
to 4 trillion naira in 2022 compared to 443 billion African country with the lowest fuel price despite
naira last year because of higher oil prices driven the increase in global oil prices.
by the war in Europe. Nigeria’s budget deficit is expected to rise to 7.35
He cited an increase in the oil price that resulted trillion because of higher prices and increasing de-
mainly from the Russia invasion and a decrease in pendency on imports to meet its domestic gasoline
domestic crude oil production. As a result, rising oil needs. The increment will be funded by new borro-
prices could lead subsidies to cost up to $7 billion wings from the domestic market. However, experts
per year. say that the Dangote refinery, once completed, will
The high crude oil prices have altered the decision double Nigeria's refining capacity, and help meet
to remove petrol subsidies, which instead turned the increasing domestic fuel demand, while genera-
out to increase significantly. Consequently, the early ting foreign exchange through exports.
pledge by Nigeria’s government to end its subsidies However, while the average Nigerian continues to
has been reversed and extended to 18 months ins- believe that the sustenance of fuel subsidy is to the
tead, due to the high level of crude oil price. citizens’ advantage, the World Bank in the Novem-
To alleviate these challenging periods, President ber 2021 edition of its Nigeria Development Update
Buhari has urged lawmakers “to raise the 2022 oil tagged “Time for Business Unusual”, revealed that
price benchmark to $73 per barrel from $62, cut the “the benefits of the PMS subsidy overwhelmingly
projected crude production by 283,000 barrels per accrue to wealthier households, and a large share is
day to 1.6 million and the cost of federally funded captured by smugglers and black marketeers.
upstream projects” Households in the bottom 40% of the income distri-
A recently published report by SBM, a Lagos-based bution account for less than 3% of all gasoline
research firm, stated that the result of this purchases.”

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