Renowned economist and Managing Director of Financial Derivatives Company, Bismarck Rewane, has proposed a shift in Nigeria’s fuel subsidy framework, advocating a refinery-based model that channels benefits directly to consumers.
Speaking during a session on Nairametrics TV, Rewane argued that Nigeria’s resource endowment and strategic location provide a strong foundation for a more efficient subsidy system anchored on domestic refining.
He noted that rather than maintaining a broad subsidy regime, Nigeria could adopt a targeted approach by leveraging local refineries to stabilize fuel prices and reduce inefficiencies.
What he is saying
Rewane explained that the proposed model would involve the government supplying crude oil to domestic refiners at a controlled price, while ensuring that refined petroleum products are sold to consumers at lower rates.
- “Nigeria will actually sell oil to the refiners at a particular price and insist that the refiners bring down their price and pay the difference,” he noted.
According to him, this approach would allow the government to focus on supporting a limited number of refiners instead of subsidising the entire fuel supply chain.
- “It is more efficient for Nigeria to pay three or four refineries to keep going and for them to transfer the subsidies to the consumers.”
He also highlighted Nigeria’s structural advantages, including its oil and gas resources and geographic positioning, as factors that support the feasibility of the model.
Rewane’s proposal comes amid ongoing debates following the removal of the petrol subsidy, a policy shift aimed at reducing fiscal pressure and eliminating distortions in the downstream sector.
More insights
While subsidy removal has improved government finances, it has also led to higher fuel prices and increased inflationary pressures, affecting households and businesses.
Rewane also linked the proposal to rising global oil prices, noting that increased revenues could provide the fiscal space needed to sustain such a system.
- “Nigeria is going to double its oil revenues because the price of oil has gone up. You must be able to recycle the oil windfall into the pockets of the people.”
If implemented, the refinery-focused subsidy model could represent a middle ground between full subsidy removal and price controls, allowing the government to protect consumers while maintaining market reforms.
What you should know
Recently, the Nigerian Economic Summit Group (NESG) had projected that escalating geopolitical tensions in the Middle East could deliver a massive oil revenue windfall to Nigeria, potentially reaching as high as N30.2 trillion if the conflict between Iran and Israel becomes prolonged.
- The NESG estimated that the fiscal windfall Nigeria could earn from higher oil prices would depend on the duration and intensity of the conflict.
- Nairametrics reports that oil prices surged as Iran intensified attacks on oil and transport facilities across the Middle East.
The World Bank had said Nigeria was losing around N10 trillion in foregone revenue to fuel subsidy and multiple exchanges as of 2022, before the implementation of President Bola Tinubu’s reforms.
