Energy expert projects long-term benefits of subsidy removal

By Abubakar Yunusa

An energy expert, Dr Ayodele Oni, said the removal of fuel subsidies in Nigeria has had a significant impact on the country’s economy.

Mr Oni, a partner at Bloomfield Law Firm, made the assertion during an interview on Tuesday in Lagos.

According to him, experts noted both positive and negative consequences for households and businesses.

He explained that the government viewed the elimination of the fuel subsidy as a crucial step toward economic reform.

He, however, noted that the immediate effects had been most acutely felt by the average Nigerian due to rising fuel prices.

Mr Oni noted that fluctuations in petrol prices had a direct and substantial impact on cost of living.

He said, “Particularly in a country where small businesses and households heavily relied on fuel, especially amid an unreliable electricity supply. Increased fuel prices lead to higher costs for goods and services, creating a ripple effect across the economy.”

He added that the surge in fuel costs could lower the standard of living and exacerbate poverty, especially for those already struggling with basic necessities.

However, Mr Oni also highlighted the long-term benefits of subsidy removal.

“By eliminating government support for fuel costs, Nigeria can reduce its reliance on borrowing and debt accumulation,” he said.

According to the Debt Management Office, the government borrowed N1 trillion in 2022 solely to cover fuel subsidies.

“With subsidies gone, savings can be redirected toward vital sectors such as education, healthcare, infrastructure, and security, ultimately improving living standards and fostering economic growth,” he said.

According to Mr Oni, the end of subsidies encourages increased investment in Nigeria’s downstream sector.

He said that deregulating the market had the potential to boost profitability for companies in the sector, attract more investments, and foster a competitive market that can benefit consumers in the long term.

“One significant development in the fuel sector is the Dangote Refinery’s decision to price petrol in dollars,” he noted.

Mr Oni explained that this shift could further drive up local fuel prices, especially as the naira continued to depreciate against the dollar.

He said that with the refinery paying international prices for crude oil, any global price increase was likely to be passed on to Nigerian consumers, leading to higher fuel costs.

He, however, believed that with increased local supply from the Dangote Refinery and potential stabilisation of Nigeria’s foreign exchange situation, prices could eventually stabilise or even decrease.

In spite of these challenges, Mr Oni remains optimistic about the future of Nigeria’s fuel sector.

He emphasised that while the country had not yet achieved full deregulation, significant strides had been made with the removal of subsidy in May 2023.

He noted that the market was moving toward greater openness, though government intervention and limited competition—such as the continued dominance of NNPC in fuel imports—still influenced pricing.

According to him, ongoing legal disputes between Dangote and the Nigerian Midstream and Downstream Petroleum Regulatory Authority highlights the challenges in the regulatory landscape.

“However, these discussions signal the possibility of future reforms and greater clarity in Nigeria’s fuel market,” he added.

Mr Oni also explained that local refineries such as Dangote face higher production costs compared to international refineries, primarily due to the high cost of crude oil and operational inefficiencies.

He said, “This often results in locally refined petrol being more expensive than imported fuel. Despite this, continued improvements in Nigeria’s refining capacity and business environment could eventually reduce production costs, making locally refined petrol more competitive.’’

Mr Oni concluded that while the subsidy removal presented short-term challenges, it offered a clear path toward a more sustainable and competitive fuel market.

He argued that Nigeria’s economic future hinged on continued reforms, investment in infrastructure, and efforts to stabilise the naira, which would ultimately benefit both consumers and businesses alike.