The Centre for the Promotion of Private Enterprise (CPPE) has warned that restoring a universal petrol subsidy could cost the Nigerian government about N20tn annually, describing the policy as fiscally unsustainable and capable of worsening the country’s foreign exchange, debt and investment pressures.
Its Chief Executive Officer, Dr Muda Yusuf, on Sunday, said the recent surge in petrol prices had created severe cost-of-living and business pressures but cautioned against responding by reversing the downstream petroleum sector reforms.
The private-sector advocacy group said the more sustainable approach was for the government to preserve the gains of petrol subsidy removal while deploying targeted measures to cushion the impact of higher energy and transportation costs on households and businesses.
According to the CPPE, reinstating the old subsidy regime would potentially expose the government to a subsidy bill of approximately N52.5 billion daily, N1.575 trillion monthly and N19.16 trillion annually, based on an estimated petrol consumption benchmark of 50 million litres per day and an indicative subsidy requirement of N1,050 per litre.
It, however, stressed that the actual cost could vary depending on petrol consumption, international crude oil prices, exchange rates, domestic refining or landing costs and the regulated pump price.
The CPPE said consumption could also rise under a renewed subsidy regime because substantial price differentials would recreate incentives for arbitrage and cross-border diversion of petroleum products.
It warned that an annual subsidy bill approaching N20tn would impose a significant opportunity cost on the economy, potentially diverting resources away from critical sectors such as infrastructure, education, healthcare, security, agriculture and social protection.
The organisation further cautioned that financing such a subsidy through increased government borrowing could deepen fiscal deficits and debt-service pressures while crowding out private-sector credit.
According to the CPPE, higher government borrowing could sustain elevated interest rates, weaken private investment and ultimately constrain productivity, employment creation and economic growth.
It said Nigeria could therefore end up replacing an energy-price challenge with a broader fiscal, debt, foreign-exchange and investment crisis if the government returned to the previous universal subsidy framework.
The CPPE acknowledged that the recent increase in petrol prices had placed considerable pressure on households and businesses, particularly through higher transportation, logistics and production costs.
It said the impact had weakened consumers’ purchasing power and further aggravated the competitiveness challenges facing micro, small and medium-sized enterprises (MSMEs).
However, the organisation argued that the current petrol-price escalation should not be attributed entirely to subsidy removal, noting that domestic structural reforms and external global energy shocks were separate factors.
The CPPE explained that before the latest escalation in international energy prices, petrol was selling at about N774 to N800 per litre, before prices subsequently rose above N1,300 per litre amid a sharp increase in global energy prices linked to the Middle East crisis.
It said the distinction was important because the two developments required different policy responses.
“Subsidy removal” represents a structural domestic reform involving the transition from administratively determined pricing to a market-oriented framework, while the recent international energy-price increase represents an external commodity-price shock, the organisation noted.
The CPPE said conflating the two issues could lead to inappropriate policy responses and undermine the long-term objectives of the downstream petroleum sector reforms.
The organisation maintained that the subsidy regime in place before the reform was unsustainable, noting that Nigeria had previously spent an estimated $10bn to $15bn annually on petroleum-product imports.
It said the import dependence placed significant pressure on the country’s foreign exchange liquidity and external reserves while subsidy and under-recovery obligations consumed substantial public resources.
The CPPE also said the former pricing system encouraged arbitrage and cross-border diversion, effectively resulting in Nigerian public resources being used to subsidise petroleum consumption outside the country.
It therefore described the old subsidy framework not simply as a petrol-pricing problem but as a broader fiscal, foreign-exchange and resource-allocation challenge.
The group further argued that the transition to market-based pricing had improved the commercial viability of domestic refining, creating stronger incentives for investments in the sector.
According to the CPPE, years of administratively suppressed petrol prices and uncertainty over pricing weakened incentives for long-term investment in domestic refining.
It said the emergence of a stronger domestic refining industry would have benefits beyond petrol production, with opportunities extending to diesel, aviation fuel, petrochemicals, fertiliser, plastics, chemicals, logistics, storage and maritime services.
The organisation said increased domestic refining capacity would also reduce Nigeria’s dependence on imported petroleum products, conserve foreign exchange, create export opportunities and retain refining, engineering, logistics and technical jobs within the country.
It urged the government to sustain policies that would enable Nigeria to move from dependence on imported petroleum products towards becoming a competitive regional refining and petrochemical hub.
However, the CPPE stressed that the fiscal benefits of subsidy removal must translate into visible improvements in the welfare of Nigerians.
It said increased revenues accruing to the federal, state and local governments following the removal of the subsidy could not, on their own, justify the reform unless citizens could see tangible improvements in public services and economic conditions.
The organisation called for greater transparency and accountability in the utilisation of the additional revenues, urging all tiers of government to demonstrate how the resources were being deployed to improve economic and social outcomes.
It specifically identified improved public transportation, electricity supply, healthcare, education, food security, infrastructure and social protection as areas where the fiscal gains should become more visible.
Rather than restoring a universal petrol subsidy, the CPPE recommended targeted interventions aimed at reducing the major sources of household vulnerability and business costs.
It called for the expansion of affordable mass transit systems, rail freight and logistics infrastructure to reduce transportation costs across the economy.
The organisation also urged the government to improve electricity supply and accelerate the deployment of compressed natural gas (CNG), solar power and other distributed-energy solutions as alternatives for households and businesses facing high energy costs.
On food security, it called for stronger agricultural security, irrigation, rural infrastructure, logistics and productivity measures to moderate food prices and reduce the broader inflationary impact of high transportation and energy costs.
The CPPE also advocated targeted social protection programmes for vulnerable households, alongside improvements in affordable healthcare and education to reduce major household expenses.
