Scale and impacts of Nigeria’s energy subsidies

GENEVA—September 21, 2012—A guidebook released today by the Center for Public Policy Alternatives and the International Institute for Sustainable Development’s Global Subsidies Initiative shines a much needed spotlight on the costs and benefits of Nigeria’s energy subsidies for citizens.

In early 2012, mass demonstrations against fuel subsidy removal led to a number of fatalities and weeks of crippling strikes, though Nigerian gasoline prices remain the lowest in West Africa, with Nigerians paying half the amount for gasoline compared to their neighbours. Keeping energy prices low places a heavy toll on public finances and the wider economy.

The current system of energy subsidies is shown to be imperfect in a number of ways. One is that the benefits flow disproportionately to wealthier citizens who consume the most energy. The subsidies also provide opportunities for corruption to flourish. Amongst many estimates of alleged abuses, the House of Representatives 2012 Lawan Report estimated that 3.3 billion litres of gasoline subsidies were paid in 2011 on volumes that were not supplied to the Nigerian market.

The guidebook emphasizes that building public support—or acceptance—of subsidy reform is critical in light of the public opposition. That requires improvements in governance and communications, as well as continued monitoring of the impacts of reform.

According to Nigeria’s Petroleum Products Pricing Regulatory Agency, the subsidy bill for gasoline jumped from US$900 million toUS$4.2 billion (151.9 billion to 673 billion) between 2006 and 2010, and spiked to US$13.6 billion (2.19 trillion) in 2011.

Subsidies to other energy products are also significant. Household kerosene is subsidized by over US$0.62(100) per litre. However, most retailers charge more than 300 per cent of the government regulated price, with the subsidy being captured by middlemen along the distribution chain.

Electricity is also highly subsidized, with tariffs around a quarter of the price of those elsewhere in West Africa. Electricitysubsidies are estimated to have been in the range US$1.5 to US$2.3 billion (N232.5 to N356.5 billion) between 2005 and 2009. Plans are underway to gradually increase tariffs to cover costs in full while maintaining a cheaper tariff for low-income consumers.

A Citizens’ Guide to Energy Subsidies in Nigeria is part of a series of guidebooks by the Global Subsidies Initiative that strive to provide accessible and timely information on fossil fuel subsidies. The guidebooks include Indonesia, Bangladesh and India.

India spent over US$9 billion subsidizing fuel products in 2010 and 2011, while Indonesia spent US$18.1 billion subsidizing fuel products in 2011 alone. A key concern is these subsidies compromise efforts to invest in much-needed social and physical infrastructure. Indonesia, for example, spends more on energy subsidies than on defence, education, health and social security combined.

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