By Barnabas Esiet.
The Centre for the Promotion of Private Enterprise (CPPE) has advised the Federal Government against returning to the universal petrol subsidy regime, warning that it could impose an annual fiscal burden of nearly ₦20 trillion on the Nigerian economy.
The CPPE, in a policy brief signed by its Chief Executive Officer, Dr Muda Yusuf, said the recent escalation in petrol prices had intensified transportation, logistics and production costs while weakening household purchasing power and worsening competitiveness challenges for businesses, particularly micro, small and medium enterprises (MSMEs).
However, the organisation said the solution should not be a return to the old subsidy regime but a combination of preserving downstream petroleum reforms and providing targeted relief to vulnerable households and productive businesses.
According to the CPPE, Nigeria’s pre-reform subsidy regime was fiscally unsustainable, with the country spending an estimated $10 billion to $15 billion annually on petroleum-product imports.
It said the system also placed pressure on foreign exchange liquidity and external reserves, reduced resources available for the Federation Account and created incentives for arbitrage and cross-border diversion.
“The old regime was therefore not merely a subsidy problem; it was a major fiscal, foreign-exchange and resource-allocation problem,” the organisation stated.
Domestic refining gains
The CPPE said the shift to market-based petrol pricing had improved the commercial viability of domestic refining after years of uncertainty and suppressed prices discouraged investment in the sector.
It noted that a stronger domestic refining industry would generate benefits beyond petrol production, creating opportunities in diesel, aviation fuel, petrochemicals, fertiliser, plastics, chemicals, logistics, storage and maritime services.
The organisation said increased domestic refining would also conserve foreign exchange through import substitution, create export opportunities and retain technical, engineering and logistics jobs within Nigeria.
It urged the government to sustain policies that would enable Nigeria to transition from dependence on imported petroleum products to becoming a competitive regional refining and petrochemical hub.
Fiscal gains must benefit citizens
While acknowledging that subsidy removal had increased revenues available to the three tiers of government, the CPPE stressed that higher government revenues alone could not justify the reform.
It called for greater transparency and accountability in the utilisation of the additional resources, saying citizens should see tangible benefits in areas such as public transportation, electricity, healthcare, education, food security, infrastructure and social protection.
“The issue is increasingly one of fiscal accountability and expenditure quality,” the CPPE said, urging federal, state and local governments to demonstrate how additional fiscal resources were improving economic and social outcomes.
CPPE separates subsidy reform from global oil shock
The organisation also urged policymakers to distinguish between the structural price adjustment caused by subsidy removal and the recent increase in petrol prices arising from global crude oil and refined-product price shocks.
It noted that petrol had been selling at about ₦774 to ₦800 per litre before the latest conflict-related escalation in international energy prices, but subsequently rose above ₦1,300 per litre amid the Middle East crisis.
According to the CPPE, attributing the entire increase to subsidy removal would therefore be misleading.
It described subsidy removal as a domestic structural reform involving the transition to market-based pricing, while the recent increase was an external commodity-price shock requiring a different policy response.
₦20tn subsidy bill unsustainable
The CPPE warned that restoring a universal petrol subsidy could recreate the fiscal leakage, foreign-exchange pressure, smuggling, arbitrage, pricing distortions and investment uncertainty associated with the former regime.
Using an estimated petrol consumption benchmark of 50 million litres per day and an indicative subsidy requirement of ₦1,050 per litre, the organisation estimated that a restored subsidy could cost about:
– ₦52.5 billion daily
– ₦1.575 trillion monthly
– ₦19.16 trillion annually
The CPPE said the actual cost would depend on consumption, crude oil prices, exchange rates, refining or landing costs and the regulated pump price.
It added that consumption could also rise under a subsidy regime as price differentials create renewed incentives for cross-border diversion.
According to the organisation, an annual subsidy bill approaching ₦20 trillion would create a huge opportunity cost, potentially diverting funds from infrastructure, education, healthcare, security, agriculture and social protection.
It further warned that increased government borrowing to finance the subsidy could crowd out private-sector credit, sustain high interest rates and weaken investment, productivity, job creation and economic growth.
CPPE calls for targeted relief
Rather than subsidising petrol consumption universally, the CPPE recommended targeted interventions aimed at reducing household vulnerability and the structural costs confronting businesses.
It called for the expansion of affordable mass transit, rail freight and logistics infrastructure, alongside improved electricity supply and faster deployment of CNG, solar and other distributed-energy solutions.
The organisation also urged government to strengthen food production through improved agricultural security, irrigation, rural infrastructure, logistics and productivity, while expanding targeted social protection for vulnerable households.
It called for improved public healthcare and education to reduce household expenses and urged measures to lower energy, logistics and financing costs for productive enterprises, particularly MSMEs.
The CPPE also advised government to maintain a predictable, market-oriented framework for domestic refining in order to protect investor confidence and encourage further investment.
‘Preserve reforms, mitigate social costs’
The organisation said the current petrol-price escalation posed a serious cost-of-living, inflation and competitiveness challenge that required urgent government intervention.
However, it maintained that restoring the pre-reform universal subsidy regime would be “neither fiscally sustainable nor economically prudent.”
The CPPE said the appropriate policy direction was to preserve downstream petroleum reforms while aggressively mitigating their social and economic costs.
It argued that the debate should move beyond the binary question of whether petrol subsidy should be restored, towards how Nigeria could use the gains from the reform to achieve lower structural costs, stronger domestic production, improved competitiveness, greater energy security and measurable improvements in citizens’ welfare.
“That is the pathway to making the reform economically sustainable and socially defensible,” the CPPE stated.
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