The Fuel Subsidy Break: Between Legality and Pragmatism

-Dr. Emeka Akabogu

Nigeria spends about 1.4 trillion naira per year to subsidize the price at which PMS is sold in Nigeria. Removal of subsidy means massive savings for the government enabling investment in other key sectors of the economy. Deregulating petrol pricing will also lead to competition, profitability and investment in the petroleum downstream sector.

In Q4 of 2021, the Federal Government announced that it will discontinue the payment of Petrol subsidy by June 2022. In January of 2022, the government postponed the planned petrol subsidy removal till further notice due to “high inflation and economic hardship”.


  • The effective date of the PIA according to the interpretation Section 318 is the date when the Act came into force and thus 16th August 2021 when President Muhammadu Buhari signed it into law.
  • The Petroleum Industry Act 2021 (“PIA”) is unequivocal in its intention to deregulate the pricing of petroleum products in the downstream oil and gas sector in Nigeria.
  • Section 205(1) of the PIA provides – “Subject to the provisions of this Section, wholesale and retail prices of petroleum products shall be based on unrestricted free market pricing conditions.” The use of the word “shall” in the section implies that the provision is mandatory. The only exception to this is where a licensed activity is a monopoly serviceor where a licenseeis a dominant provider of services (205(2).
  • Section 32(e) of the PIA empowers the Authority to “provide pricing and tariff frameworks for natural gas in midstream and downstream gas operations and petroleum products based on the fair market value of the applicable petroleum products”.


Section 32(n) further empowers the Authority “to ensure security of supply, development of the markets and competition in the markets for natural gas and petroleum products”.

By section 206(2), the Authority is empowered to “monitor bulk sale of petroleum products” as well as publish “market-based prices in order to ensure that the transactions are undertaken in a manner that transfer pricing between the supplier and the whole sale customer are undertaken at a transparent arm’s length basis.”

Last week, the NMDPRA stated it had paid petroleum marketers over N58 billion as bridging costs in the last five months. This is the by far the highest ever paid within a 6-month period by previous fund administrators by way of reimbursement of marketer’s transportation differentials for petroleum products movement from depots to sales outlets. This is at variance with Section 205(1) of the PIA above which provides that the wholesale and retail prices of petroleum products shall be based on unrestricted free market pricing conditions.”


On April 14, 2022 the National Assembly passed a revised Appropriation Act which upwardly reviewed the 2022 budget amount for Premium Motor Spirit (PMS) subsidy by N442.72billion, from N3.557 trillion to N4 trillion. Again, this is at variance with the spirit of the PIA regime which seeks establishes a market based pricing framework.

In order to resolve the aviation fuel dispute, the NNPC last week committed to assist by effectively subsidizing the importation of jet fuel. – Section 317(6) mandates that the Federation shall bear the costs of NNPC as a supplier of last resort ‘for a period not exceeding six months’ from the date the Act comes into force (16 August 2021). By section 53(7) of the PIA, the NNPC is to be run as a commercial entity without any recourse to government funds.

The PIA regime does not recognize the continued payment of subsidy. Section 317(6) mandates that the Federation shall bear the costs of NNPC as a supplier of last resort ‘for a period not exceeding six months’ from the date the Act comes into force (16 August 2021). Government’s continued payment of subsidy after February 2022 is therefore extra-legal in view of the provisions of the PIA.

What the Federal government has done amounts to suspending parts of the PIA without amending the Act itself. The PIA is in force but the free market regime isn’t.


Difficulty for private investment with continued payment of subsidies. The subsidy regime is tainted with corruption and payment inconsistency on the part of government.

According to socioeconomic research firm, SBM Intelligence in its report titled “Growing fuel prices and transport costs: Which way Nigeria.” The costs of fuel subsidy in Nigeria increased by 890% over a five year period (2017-2021) in Nigeria even though fuel prices have only increased by 12.1%.

A removal of subsidy gives the operators more control over their profits allowing them to set cost-reflective prices for their products which will in turn stimulate investment in the sector.


Section 14(2) (b) of the 1999 Constitution of the Federal Republic of Nigeria provides that “the security and welfare of the people shall be the primary purpose of government.”

The continued payment of subsidy indicates a clear intention to sacrifice a strict adherence to the black letter law on the altar of the prevailing economic circumstances.

The government has proposed to pay 5,000 naira to the poorest 40 million citizens to assist them cushion the removal of fuel subsidy and alleviate the impact of the increase in the general cost of goods and other services.


This will replace the annual fuel subsidy sum of 1.8 trillion naira with an annual palliative sum of 2.4 trillion naira.

How do you ascertain who qualifies to be in the poorest “40 million” category.

According to the program, only those who have bank accounts and NIN can access it. A large percentage of the poorest people in Nigeria do not own bank accounts let alone NIN.  There is a great likelihood that the proposed palliatives will be misappropriated.


Investing in infrastructure that reduces the general cost of living will benefit the poor man more giving out 5,000 naira which could never amount to any real palliative to the poor.

The Increasing challenge of sourcing foreign exchange makes a case for domestic refining of our own crude.

With the Dangote refinery, the cost of transportation of refined petroleum products from abroad to Nigeria will be eliminated. However, the cost of in-country transport of PMS say from the refinery in Lagos to Anambra will still remain due to the transport infrastructure deficit. This will inevitably lead to fuel pump price variations in different states depending on their proximity to the refinery.


Also, Operators will have to buy crude at market prices. Unless the government gets the crude oil and supplies it to the refiners at a rate less than the international market rate for the purpose of local supply of petroleum products, there will still be some costs to the end consumers.

  • Nevertheless, with a workable infrastructure – train, road and sea transport infrastructure, even with the fuel deregulation/removal of subsidy, the cost to consumers/eventual pump price will be significantly reduced.


  • An amendment of the PIA is necessary for the government to legally suspend the removal of subsidy. The executive cannot validly make a policy decision which supersedes the provision of statute. • Putting the right transport infrastructure in place will significantly reduce the impact of the full deregulation of the petroleum sector.


This paper was delivered by Dr. Emeka Akabogu, a Maritime and Petroleum (Midstream and Downstream) expert, at the Centre for Petroleum Information (CPI) Oil & Gas Law Forum titled: Implementing Petroleum Industry Act (PIA) 2021: Fixing arising legal issues.



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