A proposal by former Vice President Atiku Abubakar's campaign to restore fuel subsidy and bring petrol down to between ₦400 and ₦500 per litre has sparked concerns over its potential cost. According to an analysis of the production-subsidy model, implementing this plan could cost Nigeria about ₦88.1 billion daily and ₦32.2 trillion annually. This significant financial burden has raised questions about the feasibility and sustainability of the proposed subsidy.
Dino Melaye, Deputy Director-General for Contact and Mobilisation in Atiku Abubakar's 2027 Presidential Campaign Council, explained that the proposed return of subsidy could reduce petrol prices from about ₦1,400 to between ₦400 and ₦500 per litre. The analysis, which assumes a crude price of $100 per barrel, an exchange rate of ₦1,350/$, and a domestic refining capacity of 740,500 barrels per day, estimates that crude would need to be supplied to participating refiners at about $11.82 per barrel to support a ₦500 pump price.
The estimated cost of ₦32.2 trillion annually is substantial, equivalent to about 47 per cent of the entire ₦68.3 trillion federal budget and 87 per cent of projected Federal Government revenue. This huge fiscal trade-off raises concerns about the potential impact on Nigeria's economy. The cost is larger than the entire ₦32 trillion capital budget for 2026, nearly 13 times the ₦2.48 trillion health allocation, and more than nine times the ₦3.52 trillion education allocation.
The implementation of the subsidy could also have significant consequences for the naira. Nigeria earns foreign exchange from crude exports, and diverting large volumes of crude from export sales into the domestic market at an 88 per cent discount would reduce potential dollar earnings. This could lead to lower foreign-exchange inflows, placing renewed pressure on the exchange rate and external reserves.
Furthermore, financing such a large subsidy through additional borrowing or monetary expansion could create further macroeconomic pressure. This could potentially feed back into inflation, interest costs, and the exchange rate, exacerbating the economic challenges facing Nigeria. The analysis highlights the need for careful consideration of the potential risks and consequences of implementing the proposed subsidy.
The ₦32.2 trillion figure is a scenario estimate, and the eventual cost would depend on various factors, including crude prices, exchange rates, volumes supplied, refinery utilisation, and the structure of the programme. The Atiku campaign has yet to explain how much crude would receive preferential pricing, who would qualify for allocations, how diversion would be prevented, or how the programme would be financed.
In conclusion, while the proposed subsidy aims to reduce petrol prices, its potential cost and consequences require careful evaluation. The estimated daily and annual costs, as well as the potential impact on the economy, naira, and foreign exchange earnings, highlight the need for a thorough assessment of the proposal's feasibility and sustainability.
Key points
- The proposed subsidy could cost Nigeria ₦88.1 billion daily and ₦32.2 trillion annually.
- The implementation of the subsidy could have significant consequences for the naira and the economy.
- The Atiku campaign has yet to provide details on the programme's financing, crude allocations, and diversion prevention.
