Nigeria spends N3.5 trillion on Fuel importation since Subsidy removal
Do You know that Nigeria spent a staggering sum of N3.5 trillion on fuel importation since the nation announce a subsidy removal that many seem was impromptu. According to the 2023 full-year foreign trade data, Nigeria incurred about N7.5 trillion in fuel import cost throughout 2023, compared to N7.7 trillion in the previous year. See more details below as we shall be discussing more on the subject matter below.
Data from the National Bureau of Statistics reveal that Nigeria spent N3.5 trillion on fuel imports in the second half of 2023.
Fuel subsidy was removal was announced on the 29th of May but it took weeks to be fully implemented.
However, fuel importation costs for the country in the second half of the year amounted to N3.5 trillion, versus the N3.9 trillion recorded in the first half of the year.
Using the 2023 exchange rate, the country has spent approximately $7.7 billion on fuel importation in 2023.
Since colonial era, Nigeria as a country has faced serious debt crisis resulting in the inability to fund its developmental plan. For instance, one of the national daily news published in 2023 recorded that the Nigerian federal Government owes the Nigerian National Petroleum Company Limited (NNPCL) the sum of N2.8 trillion spent on petrol subsidy and being owed these large sums were no longer sustainable as it impedes the company from financing its core businesses. The NNPCL being the state- owned oil company (although recently privatized), has since been sole importer of petroleum products in Nigeria and has consequently been responsible for financing the petroleum subsidy on behalf of the government.
Not surprisingly, the subsidy regime was removed following President Bola Ahmed Tinubu’s announcement during his inauguration on May 29th, 2023, leading to an over 200% increase in Premium Motor Spirit (PMS), from N190/liter in May 2023 to N600/liter. Earlier in 2022, subsidy was also removed from Automotive Gas Oil (AGO) – popularly called “Diesel’ leading to an over 200% increase in its price and directly impacting the most on businesses that are heavily reliant on diesel generators as a substitute for the epileptic electricity grid supply. The fuel subsidy removal has had both positive and negative impacts on Nigerians; the most immediate negative impacts has been a rapid increase in inflation stemming from the sharp rise in transportation cost, while the most immediate positive impact is the apparent savings of over N1 trillion on a bimonthly basis, after the fuel subsidy removal.
TRENDING NOW: SEE THE NEW CEMENT PRICE AGREE BY MANUFACTURERS IN NIGERIA
According to a study, fuel subsidy was introduced in the country in the 1970s, when the government launched it to make consumers pay less for the price of fuel because of the 1973 oil crisis. The fuel subsidy was partially removed again by the government in 1986 but it was put back until 2012 when it was removed again under the Goodluck Jonathan Administration which led to huge protests call the government to reinstate it, which they did eventually. From that moment on, the payment of fuel subsidy had grown extensively, fuel subsidy reached N4 trillion totaling 23% of the national budget of N117.126 trillion in 2022. Consequently, Nigeria had found it unsustainable to continue with fuel subsidy, leading to its complete removal in June 2023.
The first significant attempt to try to eliminate fuel subsidy or at atleast minimize the cost happened in 1978. This happened when domestic demand had begun to outstrip local refinery output and the country was experiencing significant shortage in product supply.
The government continued with its policy of supply of petroleum to domestic refineries at subsided prices. However, this time, the difference in the price of crude oil supplied to local refineries and the international market price was only 26% and the pump price of petrol increased by 74%. Subsidy increased again to more than 65% in 1980 as crude oil prices hit $40 per barrel from less than $14, an increase of 290% from two years preciously. Even though the amount required for this subsidy this period was huge, the increase in domestic refining capacity, as the 125,000 BPD Warri refinery came on stream, helped the subsidy cause.
Funny enough, the removal of this fuel subsidy brings both challenges and opportunities. There has been a sharp rise in inflation. Also, Micro, Small and Medium-sized Enterprises (MSME) are now facing difficulties in accessing affordable power.
Nevertheless, individuals, businesses and the government now have a stronger reason to see opportunities in clean energy by embracing cleaner options like electric vehicles, biofuels, or solar powered technologies. The prevailing increased cost of fuel will undoubtedly stimulate investments in affordable renewable energy infrastructure, leading to a greener economy and sustainable transportation systems, contributing to the net zero targets by 2050 set by the United Nations.
For instance, the Government confirmed that the subsidy removal led to an increase in government revenue from about N786 billion in May 2023 to about N1.9 trillion in June 2023.
According to sources from the government, some of the savings from the fuel subsidy removal will be channeled into economy-driving activities such as low-interest loans for MSME businesses as well as acquiring mass transit CNG buses to promote cleaner transportation (Nigeria has a proven gas reserves of 209.5 trillion cubic feet (TCF) which is capable of powering CNG vehicles. Furthermore, Nigeria recently unveiled her energy transition plan, putting in place concrete action steps towards decarbonization such as the deployment of decentralized renewable energy (DRE) infrastructure; the expansion of transmission and distribution network; the upgrade of central generation capacity to achieve 42 GW of operation capacity in 2030 and the post-2030 deployment of a centralized RE- solar PV infrastructure and corresponding storage with hydrogen starting in 2040.
Some reports suggest that the removal of subsidies may result in lower demand for petroleum products due to higher prices. However, the ensuing depreciation of the naira also meant that it became more costly in naira.
Some of the implication of this policy is that while the government may save revenue by eliminating subsidies, the country spends a significantly higher amount on importing the product, adding to the demand pressure on the dollar.
The continue importation of petroleum products in the country has cost Nigeria a staggering N23.5 trillion over the last five years and this trend will not end unless the country fixes its four refineries.
Lastly, as Nigeria awaits the full take off of the newly commissioned Dangote Refinery and the availability of domestic supply, the end of fuel importation may still be far.
The removal of fuel subsidy in Nigeria, although coming with immediate challenges, opens myriads of opportunities that can drive Nigeria’s Energy Transition Plan. With the Nigeria Government’s bold policy direction in engendering cost reflective energy pricing system, Nigeria is fast becoming a central hub for investors and businesses alike in the renewable energy space in Africa.
What's Your Reaction?
