Impact of fuel subsidy removal in Nigeria

@Sendea Uganda

Since colonial era Nigeria has faced a serious debt crisis resulting in the inability to fund its development 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 fuel subsidy 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 ($0.25/liter) in May 2023 to a N600/liter ($0.8/liter). Earlier in 2022, subsidy was also removed for 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 impact 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.

According to a study, fuel subsidy was introduced in the 1970 s 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 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 calling on 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 N17.126 trillion in 2022. Consequently, Nigeria had found it unsustainable to continue with the fuel subsidy, leading to its complete removal in June 2023.

The removal of fuel subsidy brings both challenges and opportunities. There has been a sharp rise in inflation. Also, Micro, Small and Medium-sized Enterprises (MSMEs) are now facing difficulties in accessing affordable power.

However, individuals, businesses & 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 petrol will undoubtedly stimulate investments in affordable renewable energy infrastructure, leading to a greener economy and sustainable transportation systems, contributing to the net zero target 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 President Bola Ahmed Tinubu, some of the savings from 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’s 209.5 trillion cubic feet (TCF) of proven gas reserves being capable of powering vehicles which reduces operating cost by 30% and carbon footprints by 95%). 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.

Nigeria Energy Transition Plan (Power)

Nigeria Energy Transition Plan. (2022). Milestones [JPEG].


In conclusion, 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 Nigerian Government’s bold policy direction in engendering cost reflective energy pricing system, Nigeria is fast becoming a central hub for investors & businesses alike in the renewable energy space in Africa.


Excerpt of: Annual Solar Outlook report 2024, AFSIA, 2024


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