Nigeria's fuel subsidy hangover bodes ill for state finances

LAGOS - Dauda Adekanbi drives one of the hundreds of yellow minibuses that weave through Lagos, Nigeria’s thrumming commercial capital.

Customers line up despite the coronavirus pandemic. But he has a different problem: rising petrol prices.

“Fuel is the only thing the government keep increasing,” the 50-year-old told Reuters on a busy Friday afternoon.

While Adekanbi is feeling the pinch, observers say government coffers are at risk, too.

Nigeria said in March that it had ended costly fuel subsidies, and announced in September it was no longer fixing pump prices. Since then, Lagos prices have risen to just over 160 naira per litre from 145.

But state oil company NNPC remains the country’s sole gasoline importer, and its group managing director, Mele Kyari, said that, if prices floated with no control, that could hurt consumers.

“Government is very keen on making sure that people are not exploited,” he told Reuters in an interview.

Four private importers, one former NNPC executive and a source close to the company said it was still setting gasoline prices – but at fuel depots rather than at the pump.

Those prices, set using an unpublished template, block private companies from importing, leaving the government as also the sole gasoline seller and opening it to continued losses.

NNPC’s Kyari insisted there was no allocation for fuel subsidies, elimination of which was among conditions for a $1.5 billion World Bank budget support loan. The Bank did not comment.

But Tunji Oyebanji, chairman of the Major Oil Marketers Association, said NNPC was losing at least 30 naira ($0.08) per litre on gasoline in early February, based on the international fuel price and the publicly available dollar exchange rate.

With daily consumption of roughly 40 million litres, that’s 1.2 billion naira ($3.15 million) per day, at a time when low oil prices have left Nigeria’s budget 5.60 trillion naira in deficit.

“The reality of it is that whether it’s subsidy, (whatever) you want to call it... it’s still happening,” Oyebanji told Reuters at his office in Apapa, the port where most fuel enters Nigeria.