CPPE to FG: Restore targeted relief, not petrol subsidy

•Says N20trn yearly payouts may cripple economy

The Centre for the Promotion of Private Enterprise (CPPE) has warned against any return to the old universal petrol subsidy regime, saying it could expose Nigeria to an estimated annual subsidy bill of about N20 trillion.

In a policy brief released on Sunday and titled “Petrol Subsidy: Preserving Reform Gains While Protecting Citizens,” the CPPE said the recent surge in petrol prices had placed severe pressure on households and businesses, raising transportation, logistics and production costs while weakening consumers’ purchasing power.

The policy brief, signed by Dr Muda Yusuf, Chief Executive Officer of the Centre, noted that the solution should not be a return to the pre-reform subsidy system, but targeted measures to cushion vulnerable Nigerians and reduce the wider economic costs of high energy prices.

According to the CPPE, the subsidy debate has implications beyond the price of petrol, affecting government finances, foreign exchange, investment, domestic refining, industrialisation, employment and Nigeria’s energy security.

The organisation said the old subsidy regime was unsustainable, noting that Nigeria previously spent an estimated $10 billion to $15 billion annually on petroleum-product imports, putting pressure on foreign exchange liquidity and external reserves. It added that subsidy and under-recovery obligations consumed huge public resources, reduced funds available to the three tiers of government and increased fiscal pressures.

The CPPE also said the artificially low petrol prices encouraged arbitrage and cross-border diversion, meaning that Nigerian public resources were effectively being used to subsidise fuel consumption outside the country.

“ The old regime was therefore not merely a subsidy problem; it was a major fiscal, foreign-exchange and resource-allocation problem,” it stated.

On domestic refining, the CPPE said the shift to market-based pricing had improved the commercial prospects of local refineries, after years of uncertainty and administratively controlled prices discouraged long-term investment in the sector.

It said a stronger domestic refining industry would create opportunities beyond petrol production, including diesel, aviation fuel, petrochemicals, fertiliser, plastics, chemicals, logistics, storage and maritime services.

According to the organisation, increased domestic refining would also reduce dependence on imported petroleum products, conserve foreign exchange, create export opportunities and retain refining, engineering, logistics and technical jobs within Nigeria.

It urged the government to pursue the development of Nigeria into a competitive regional refining and petrochemical hub.

The CPPE said the additional revenue accruing to the federal, state and local governments from subsidy removal must translate into visible improvements in citizens’ welfare.

It said higher government revenues alone could not justify the reform, stressing that Nigerians should see tangible benefits through better public transportation, electricity, healthcare, education, food security, infrastructure and social protection.

The organisation called for greater transparency from all tiers of government on how the additional fiscal resources generated by the reform were being spent.

The CPPE also warned against blaming the entire recent increase in petrol prices on subsidy removal.

It said petrol had been selling at about ₦774 to ₦800 per litre before the latest conflict-related rise in international energy prices, but subsequently climbed above ₦1,300 per litre as global crude oil and refined-product prices surged amid the Middle East crisis.

It said the two developments should be treated separately because they require different policy responses.

“ It is analytically important to distinguish the structural price adjustment arising from subsidy removal from the more recent increase caused by global crude-oil and refined-product price shocks,” the CPPE said.

On the cost of restoring subsidy, the organisation estimated that using a petrol consumption benchmark of 50 million litres per day and an indicative subsidy of ₦1,050 per litre, government could face a fiscal burden of about ₦52.5 billion daily, ₦1.575 trillion monthly and ₦19.16 trillion annually.

It noted that the actual cost would depend on factors such as petrol consumption, crude oil prices, exchange rates, refining or landing costs and the regulated pump price.

The CPPE warned that consumption could also rise under a subsidy regime because price differences could once again encourage smuggling and cross-border diversion.

It said an annual subsidy bill approaching ₦20 trillion would create a huge opportunity cost, competing with spending on infrastructure, education, healthcare, security, agriculture and social protection.

It further warned that increased government borrowing to finance such expenditure could widen the fiscal deficit and raise debt-service costs.

Higher borrowing, it said, could also reduce the availability of credit to businesses, sustain high interest rates and weaken investment, productivity, job creation and economic growth.

“ Nigeria would therefore risk replacing an energy-price problem with a much larger fiscal, debt, foreign-exchange and investment problem,” it warned.

Rather than restore universal petrol subsidies, the CPPE recommended targeted relief measures that directly address the causes of household vulnerability and high business costs.

It called for the expansion of affordable mass transit, rail freight and logistics infrastructure, as well as improvements in electricity supply and faster adoption of CNG, solar and other distributed energy solutions.

The organisation also urged the government to strengthen food production through better agricultural security, irrigation, rural infrastructure, logistics and productivity.

It recommended targeted support for vulnerable households, improved public healthcare and education, and measures to reduce energy, logistics and financing costs for micro, small and medium enterprises.

The CPPE further urged the government to maintain a predictable, market-oriented framework for domestic refining to protect investor confidence and attract further investment.

The organisation said the responsibility for cushioning the impact of petrol price increases should be shared by the federal, state and local governments.

It maintained that the appropriate policy direction was to preserve downstream petroleum reforms while aggressively reducing their social and economic costs.

The CPPE said the additional resources generated by subsidy removal must become more visible through infrastructure, public services and productive investment.

It also called for greater transparency and accountability in the use of the additional revenues accruing to the three tiers of government.

“The subsidy debate should therefore move beyond the binary question of whether petrol subsidy should be restored,” the organisation said.

“The more consequential issue is how Nigeria can convert the gains of the reform into lower structural costs, stronger domestic production, improved competitiveness, greater energy security and measurable improvements in citizens’ welfare.”

The CPPE said that was the pathway to making the reform economically sustainable and socially defensible.