Evaluating Impacts Of Deregulation On Nigeria’s Economy

Stakeholders

The declaration by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, that the Federal Government had officially terminated fuel and foreign exchange subsidies has confirmed the full deregulation of the downstream sector of Nigeria.

Many stakeholders had called for the full deregulation of the sector and argued that it would engender competition, and product availability, thereby stopping scarcity of petroleum products, long queues at petrol stations and the attendant hardship.

The Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), led by Mrs. Winifred Akpani, had said DAPPMAN remained in full support of the implementation of a fully deregulated regime, which, she said, would make the downstream sector’s operations more seamless, enhance transparency, competitiveness and sustainable growth.

Similarly, the then Major Oil Marketers Association of Nigeria (MOMAN), which later rebranded to Major Energies Marketers Association of Nigeria (MEMAN), canvassed for the implementation of a fully deregulated downstream.

The Executive Secretary, MEMAN, Mr. Clement Song, and MEMAN Chairman, Stokman Huub opined that deregulation was highly desirable. Also, the Bretton Woods Institutions: the World Bank and the International Monetary Fund (IMF), had also advised the Federal Government to fully deregulate the petroleum sector, adding that such would bring about cost saving measures that will free up finances for other governance activities, including infrastructural provision. and human capital development.

A former President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Mr. Peter Esele, in a recent interview with New Telegraph, opined that Nigeria had started implementing full deregulation of the downstream sector.

Experts

Recall that experts in the energy sector, including Publisher, Africa Oil+Gas Report, Mr. Toyin Akinosho, and an oil and gas governance consultant, Mr. Ademola Adigun, had in June, in an interview with New Telegraph, said he thought the coming on board of Dangote Refinery was a positive development that would not crash prices of petroleum products but ensure their availability.

Akinosho and Adigun also said that the refinery would create massive direct and indirect jobs along the value chain and also lead to development of host communities. Adigun said: “Low pricing from Dangote? I do not know where they got it from.

I kept on asking ‘how possible is it?” Against the backdrop of the current high fuel pump prices nationwide, as against the expectation of some Nigerians that the commencement of fuel production by Dangote refinery will reduce pump price from them about N600 to about N400, an energy sector analyst, Biodun Ogundipe, said Dangote refinery could not sell its products below cost price.

He noted that about $20 billion was invested on the project and that the founder, Aliko Dangote, had borrowed some of the money and needed to repay even with interest. According to him, the Nigerian National Petroleum Company Limited (NNPC Ltd) bought a litre of fuel at N977 from Dangote Refinery.

He also said that NNPC Ltd as a business that is now set up to make profit under Petroleum Industry Act (PIA) could not also afford to sell below its cost price, adding that it was now a fully deregulated market that will drive competition and growth in the sector.

Explaining the current high fuel pump price in Nigeria despite local refining and production, he said that global market forces determined fuel prices in Nigeria.

Ogundipe said: “Despite local refining at Dangote and the soon-to-belicensed NNPC Port Harcourt Phase I (currently undergoing final testing of completely and partially rehabilitated sections), the cost of crude oil and other production factors remain aligned with global benchmarks.

“Additionally, removing subsidies means that the prices Nigerians pay at the pump reflect the actual cost of refining, logistics, and distribution. This shift ensures long-term sustainability for the sector after decades of inefficiency and subsidy abuse.

“Beyond these immediate benefits, the full deregulation and local refining also open the door to increased investment in the downstream sector, which will create thousands of jobs and catalyse industrialisation.

“There will be no longer reliance on importing refined petroleum products. Nigeria will produce and refine locally, thereby keeping the jobs and economic benefits within the country.”

Subsidy no longer sustainable

He stated that the subsidy regime,

US Qatar, Saudi Arabia, United Arab Emirate and others heavily subsidised fuel prices. Many countries of the world, including more developed ones than Nigeria are still spending heavily on fuel subsidies

which cost Nigeria billions of dollars and drained resources from critical infrastructure projects, was no longer sustainable.

According to him, removing it has allowed the market to operate freely. He stated that prices may initially rise, but global oil prices, exchange rates, and local refining costs influenced them. He stated that if crude oil prices fall or refining becomes more efficient, pump prices would adjust accordingly.

He opined that removing subsidies also curtailed fuel smuggling, which had been rampant under the subsidised regime. He said that the removal of subsidies opened up opportunities for local refineries to thrive.

He added that as investments increase in the refining sector, the downstream market would become more competitive, attracting investors and creating jobs that Nigerians need.

Ogundipe opined that under the deregulated system, independent marketers were free to purchase fuel directly from Dangote Refinery and other local or international refineries.

He stated that this ensured a more competitive market and broader distribution, helping stabilise prices and improve access across the country.

According to him, NNPC Ltd no longer holds a monopoly over fuel procurement. Ogundipe said: “Independent retail stations and NNPCL are free to buy PMS (from wherever it is available and more affordable) and sell it to Nigerians within a margin as stated in the PIA and regulated by the NMDPRA and other relevant agencies.

It is a willing buyer-willing seller market now. “NNPC Ltd is no longer a regulator of fuel prices. Following the reforms under the Petroleum Industry Act (PIA), NNPC Ltd now operates as a commercial entity and a limited liability company, competing with other players in various aspects of the petroleum and fuel market – upstream, midstream, and downstream.

“NNPC Ltd purchases fuel based on agreed commercial terms from local or international refiners or suppliers and distributes it like other marketers to their retail stations or others who want to buy from them.

“The price of petrol, whether from NNPC Ltd or any independent marketer, is decided by market forces, as well as the cost of products they receive from local refineries or global suppliers.

“For instance, the latest batches of products obtained from the private local refinery in Nigeria were sold to NNPC Ltd by the refiners at around N998 per litre.”

He said that removing subsidies would free up billions of dollars that can be channelled into critical sectors like healthcare, education, infrastructure, and job creation.

According to him, this will reduce the government’s borrowing needs, stabilise the Naira and create a more competitive market for domestic refining. He stated that, additionally, it would incentivise local refineries to expand their capacity, reducing the dependence on imported fuel and increasing Nigeria’s energy security.

“By significantly boosting investment in the downstream sector, we have the opportunity to generate thousands of jobs, drive industrialisation, and liberate Nigeria from its reliance on imported refined petroleum products.

Through local refining, we can bring home jobs that were once sent abroad, empowering our economy and nurturing local talent.

“Global market dynamics will drive prices, but fuel prices are expected to stabilise as local production increases and competition between independent marketers grows.

Moreover, as more refineries come online, the reliance on expensive imported fuel will decrease, further stabilising the market and potentially driving down prices. “Global oil price declines will also directly impact pump prices in Nigeria.

As investments continue to flow into the local refining sector, Nigeria is expected to see a reduction in fuel imports. This will drive long-term price stability and foster job creation in refining, logistics, and retail sectors.”

Analyst

Another sector analyst, Jime Itaho, said that the government was already providing alternatives to petrol as it is promoting the adoption of Compressed Natural Gas (CNG), a cheaper and cleaner alternative to petrol through the Presidential CNG Initiative.

He stated that CNG was currently priced significantly lower at N230 per litre, offering immediate relief to consumers. He also said the government was also encouraging investment in infrastructure to support CNG adoption in the transport sector.

Itaho said: “The government has also started a convert-now-paylater scheme to help vehicle owners convert their cars easily. Go to the nearest conversion centre in your state and switch to CNG.

Do you know that a full tank of CNG will provide the same service as four to six full tanks of petrol for your car? It is also safer, cheaper and CNG stations are being made available across the country in partnership with the private sector.

The Nigerian government has adopted a fully deregulated approach under the PIA, which ensures transparency and competition.

All players, including NNPCL and private marketers, are subject to market rules and must operate transparently. The removal of subsidies prevents manipulation, ensuring that consumers pay for the actual cost of fuel production and distribution.

Additionally, the government is keen to ensure that the funds saved from subsidy removal are used to develop critical infrastructure. “Citizens are encouraged to support these reforms by being patient and understanding the broader benefits of a fully deregulated market.

While there may be temporary pain, the long-term gains—such as more jobs, improved infrastructure, and reduced smuggling—will benefit the entire economy.

Additionally, citizens are urged to hold the government accountable for how the savings from subsidy removal are spent, ensuring they are invested in key sectors that directly improve their quality of life.” He recalled that in 2023, the then administration removed subsidies for fuel and only budgeted for it till the end of May 2023.

He added that the National Assembly approved this plan for the 2023 budget, which the current administration met. According to him, there are currently no plans to extend these subsidies.

Idaho said: “It is important for the government to continue this trend by fully deregulating the market and removing fuel subsidies to stabilize the economy and ensure long-term energy security.

“The access to fuel from Dangote Refinery for independent marketers will promote fair pricing and healthy competition. As a citizen, what can you do? We should remain patient and vigilant as we anticipate positive outcomes such as increased infrastructure development and energy stability.

Additionally, commercial transporters who have received free FG CNG conversion kits through PCNGI are encouraged to pass on these savings to their customers.”

Energy commentator

However, another energy sector commentator, John Abioye, urged the FG to have a rethink on its subsidy withdrawing policy.

He recalled that the report from the same IMF that encouraged the FG to remove fuel subsidy said that the United States, Qatar, Saudi Arabia, United Arab Emirate and others heavily subsidised fuel prices.

Many countries of the world, including more developed ones than Nigeria are still spending heavily on fuel subsidies.

He said: “Subsidies per capita as published by IMF in September 2023 shows that in Qatar, it stood at $3897, in Saudi Arabia, the amount stood at $4817, in Kuwait, the amount stood at $5058 per capita, while that of Korea stood at $1178.

“In Luxembourg, the amount stood at $4389, in the United States, the fuel subsidy per capital stood at $1535, Russia was $1419, Singapore stood at $2167, and Oman spent $1994 per capital on fuel subsidies.

“The poverty rate in Qatar was put at 0.4 per cent while in Saudi Arabia, the poverty rate stood at 13.56 per cent. The poverty rate for Oman was put at 10.1 per cent.

“Like Nigeria, Qatar is also one of the world’s leading producers of crude oil at an approximate crude oil production of 1.76 million per day, that of Saudi Arabia is estimated at 9.5 million barrels per day.”

Last Line

He argued that the Bretton Woods Institutions’ position was not in tandem with the realities in Nigeria.