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Say it’s subsidy in disguise, warn it may trigger scarcity
From Adanna Nnamani, Abuja
Economists and development experts have faulted the Federal Government’s planned 30-day petrol discount, warning that the initiative could encourage hoarding, trigger scarcity and offer only temporary relief to Nigerians amid rising fuel prices.
They argued that the short duration of the intervention could encourage petroleum marketers to stockpile products during the discount period and sell them at higher prices after it expires.
The experts also questioned the sustainability of the measure, with one describing it as a subsidy in disguise and urging the government to prioritise productive interventions that would ease the cost of living.
The Federal Government had announced plans to negotiate a ceiling of N1,350 per litre on the ex-gantry or landing cost of petrol as part of efforts to cushion the impact of rising fuel prices.
The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, disclosed this during a press briefing on Thursday. He also announced a 30-day discount on petrol sold at Nigerian National Petroleum Company Limited (NNPCL) stations, with priority given to public transport operators nationwide.
Oyedele said other measures under consideration included forward sales of crude oil to domestic refineries, the removal of illegal levies that increase transport and logistics costs, and the establishment of a National Strategic Fuel Reserve to protect supplies during global disruptions.
However, the Vice President of the Abuja Chamber of Commerce and Industry and economist, Dr Chijioke Ekechukwu, urged the government to extend the relief beyond 30 days to provide more sustainable support to Nigerians.
He identified exchange-rate pressures, high international petroleum prices and inflation as major factors driving the current economic hardship, arguing that government interventions should offer relief over a reasonable period.
Ekechukwu warned that announcing a fixed 30-day window could encourage petroleum dealers to purchase and hoard products rather than sell them during the discount period, potentially creating scarcity after the initiative expires.
He called on the government to reconsider the duration of the intervention and adopt a more enduring arrangement that would reduce uncertainty in the market.
Although he acknowledged that any reduction in petrol prices would provide some relief, however modest, the economist said the government could do more, considering Nigeria’s status as an oil-producing country.
He added that addressing exchange-rate pressures and rising international oil prices would be critical to achieving a significant reduction in pump prices.
Ekechukwu said: “Limiting the discount to 30 days may create an opportunity for petroleum dealers to buy and hoard products during the period, only to sell them after the discount expires.
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“The government should provide sustainable relief that will last for a reasonable period, rather than limit the intervention to 30 days. Any savings, no matter how small, will be beneficial to the average Nigerian. However, the government can do more, especially considering that Nigeria is an oil-producing country.
“The two major factors driving petrol prices are the exchange rate and international oil prices, which have risen because of the conflict involving Iran and the United States. If these factors are properly managed, petrol prices should come down significantly.”
Also reacting, an economist and development expert, Aliyu Ilias, described the planned discount as a subsidy in disguise, arguing that any decision by NNPCL to sell petroleum products below the prevailing cost would require someone to bear the difference.
Ilias questioned the sustainability of the intervention, asking what would happen when the 30-day period elapsed. He also argued that the period was too short for the price reduction to have a meaningful impact across the economy.
He urged the government to prioritise productive subsidies that support economic activities rather than concentrate primarily on reducing petroleum prices.
He said: “We must remember that it is NNPCL, not NNPC now, so anything that makes them reduce the price beyond the standard means someone has to pay it.
“So it is a subsidy in disguise. But it is not sustainable. What happens after 30 days? Moreover, as an economist, the lag time will not allow the difference to be reflected in 30 days. The government should embark on a productive subsidy rather than price.”
Meanwhile, the Federal Government has insisted that the proposed petrol price ceiling would not amount to a return to subsidy or price control.
Oyedele explained that the N1,350-per-litre ceiling was intended to smooth out price fluctuations rather than suppress market prices. Under the proposed arrangement, refiners and importers would absorb costs above the ceiling and recover them later when crude oil prices or the exchange rate improved.
He said the arrangement would be reviewed monthly, with the figures published to ensure transparency.
The minister also warned that a return to blanket petrol subsidy could place severe pressure on public finances. He estimated that restoring the pre-reform price would cost more than N20 trillion annually, while fixing petrol at N500 per litre would cost over N16 trillion yearly.
Oyedele further warned that such spending could weaken government revenue and put pressure on the exchange rate, potentially pushing the dollar towards N3,000 and petrol prices to at least N2,000 per litre.
The Federal Government has maintained that targeted and sustainable relief would be preferable to a blanket subsidy, arguing that the latter would merely shift the cost of fuel from consumers to public finances rather than eliminate it.
