Nigeria Lifts Fuel Subsidy, Nearly Doubling Price At The Pump To Encourage Competition

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Written by Dana Sanchez

For months, Nigerians have been waiting to pump fuel in kilometers-long lines while others are forced to buy fuel on the black market, sometimes paying triple the official price of 87 naira ($0.43) per liter, UKFinance reported.

Today, Nigeria removed its controversial fuel subsidy and, faced with fuel shortages caused by a foreign exchange scarcity, hiked the price of gasoline almost double.

The new price introduced by President Muhammadu Buhari’s administration will drive up gas prices sold at the pumps to 145 naira ($0.73) per liter, said Emmanuel Kachikwu, Petroleum Resources Minister of State, in a statement.

Previous attempts to end the subsidy produced riots and, in 2012, the biggest demonstrations ever seen, forcing the government to reinstate the subsidy, ABCNews reported.

The 4-million-strong Nigeria Labour Congress said the higher gas prices will make life more miserable for Nigerians struggling with inflation and increases in electricity costs despite more blackouts.

President Muhammadu Buhari said the decision was made to end fuel subsidies at a meeting that included legislators, labor leaders and Enough Is Enough Nigeria, which helped lead the 2012 protests. The congress said it advised the meeting that current prices should stand.

Nigeria refines only enough crude to provide half its needs, according to ABC.

Vandals have been disrupting crude oil production, supply of crude to the refineries and gas to the thermal power stations, PunchNG reported. For the past two months, electricity supply has been virtually non-existent in parts of the country. 

“In the last two weeks, the national grid collapsed a number of times,” Buhari said on his state visit to China in April. “I hope this message will reach the vandals and saboteurs who are blowing up pipelines and installations. We will deal with them the way we dealt with Boko Haram.”

Last week, militants from the Niger Delta Avengers blew up the Chevron Okan platform and the Shell/NNPC oil pipeline in Delta State. Shell, which had already lost 250,000 barrels per day production in February attacks, declared another 90,000 bpd loss. The attacks depressed Nigeria’s production to a 22-year low at 1.69 million bpd, Reuters reported.

Removing fuel subsidies is likely to face opposition in Africa’s largest, most populous economy, where the majority feel subsidized fuel is the only benefit of oil wealth, FinancialTimes reported.

However, the business community and analysts welcome the subsidy, saying the country must take steps to avert a bigger crisis. The downstream oil sector and foreign investors in particular have been hoping Buhari would lift subsidies.

Buhari held off on removing subsidies, a decision analysts said suggested he was ignoring market realities.

The International Monetary Fund said African commodity exporters have “generally been behind the curve” in policy responses to falling oil prices. While Nigeria has pumped as much as 2 million barrels of crude a day — more than 2 percent of global demand — its struggling domestic refinery system has left it reliant on imported fuel.

Removing fuel subsidies is a huge step towards freeing up a fuel import market that has become a wasteful racket costing Nigeria as much as $6 billion in fraudulent claims, according to a 2012 government report, said FinancialTimes.

Removing the fuel subsidy “puts Nigeria in the camp of reformers,” said Charlie Robertson, chief economist at Renaissance Capital, referring to subsidies removed by Gulf oil producers. “This is another pro-market move,” he said.

“We share the pains of Nigerians but, as we have constantly said, the inherited difficulties of the past and the challenges of the current times imply that we must take difficult decisions on these sorts of critical national issues,” a government statement read. “We believe in the long term, that improved supply and competition will drive down prices.”

The Nigerian National Petroleum Corporation has been the sole importer of fuel during the last few months, forcing independent marketers to be completely dependent and to implement the official fuel prices, PetrolPlaza reported.

Experts believe Africa’s largest oil producer will benefit from a more open and competitive fuel retailing market.

Nigeria’s Petroleum Minister said the government is liberalizing the market, allowing any Nigerian entity to import fuel using foreign currency from any source. That would include foreign exchange bureaus where the naira recently has traded at up to double the official rate of 199 naira to the dollar, ABC reported.