FG Faces Potential Monthly Subsidy of N236bn on Imported and Dangote Petrol

The Nigerian government may incur significant costs to subsidize petrol from both imported sources and the Dangote refinery.

The Nigerian government is bracing for a potential monthly subsidy of N236 billion on petrol sourced from both the Nigerian National Petroleum Company (NNPC) and the Dangote Petroleum Refinery. This situation arises as the government seeks to stabilize local fuel prices while maintaining supplies through both domestic production and imports.

The Nigerian government petrol subsidy situation has become a pressing issue, with officials indicating that NNPC is currently selling Premium Motor Spirit (PMS), commonly referred to as petrol, at a loss. NNPC purchases petrol from Dangote’s refinery at N898 per litre but distributes it to marketers at a subsidized price of N766 per litre, resulting in a daily subsidy of about N3.3 billion. Over the course of a month, this subsidy on Dangote petrol could accumulate to approximately N99 billion.

In addition to domestic supplies from Dangote, the Nigerian government continues to import petrol to meet the country’s consumption needs. The NNPC has been selling imported petrol to marketers at N895 per litre, though the landing cost of the product remains significantly higher at N1,117 per litre. This creates an additional subsidy of N222 per litre on imported fuel, leading to a daily cost of N4.59 billion and an estimated monthly expenditure of N137.86 billion.

The Nigerian government petrol subsidy is thus projected to total N236.86 billion per month when both imported and Dangote-sourced petrol are factored in. Despite these mounting costs, there have been ongoing calls, including from Dangote Group President Aliko Dangote, for the complete removal of petrol subsidies to allow market forces to determine the actual demand and pricing of fuel in Nigeria.

In his remarks, Dangote noted, “Subsidy distorts the market and encourages overestimation of fuel consumption, leading to inefficiencies. Now is the right time to phase it out.” This sentiment is echoed by the Independent Petroleum Marketers Association of Nigeria (IPMAN) and other key stakeholders in the energy sector.

Meanwhile, oil marketers report that in the past week alone, over 50 million litres of PMS have been lifted from the Dangote refinery. Dangote, which began releasing petrol into the domestic market on September 15, 2024, has pledged to supply 25 million litres daily, further reducing the country’s reliance on imports.

However, conflicting reports about Nigeria’s actual fuel consumption persist. Figures from various government agencies vary widely, with daily consumption estimates ranging from 45.7 million to over 64 million litres. The significant reduction in fuel consumption following the subsidy removal in 2023 has raised questions about whether previous figures were inflated due to smuggling activities.

The Nigerian government’s handling of the petrol subsidy remains a crucial issue, as the financial strain of maintaining it is becoming unsustainable. Experts like Dr. Muda Yusuf, Director of the Centre for Promotion of Public Enterprise, have noted that the country’s fuel subsidy regime is untenable in the long run due to currency devaluation and price discrepancies with neighboring nations, where petrol costs significantly more.

As Nigeria grapples with the financial challenges posed by fuel subsidies, the debate over whether to fully eliminate them is likely to intensify.