POLICY STATEMENT 044 ISSUED BY THE INDEPENDENT MEDIA AND POLICY INITIATIVE (IMPI)
The Fallacy of Atiku and Obi’s Subsidy Restoration Advocacy
We are particularly concerned with the cacophonous, illogical noise of the restoration of fuel subsidy advocacy that has suddenly become the mainstay of presidential campaigns of the African Democratic Congress (ADC) candidate, Alhaji Atiku Abubakar and his Nigeria Democratic Congress (NDC) counterpart, Mr Peter Obi, so much that we decided to revisit it after we had responded to it in our Policy Statement 041.
Atiku had proposed a “production subsidy” model—wherein the Federal Government supplies crude oil at discounted or guaranteed threshold prices to domestic refineries or pays the government support difference.
On the other hand, Obi and his running mate, Rabiu Musa Kwankwaso, advocated two different models which are related to Atiku’s proposition.
The NDC presidential candidate maintained that while subsidy removal was theoretically necessary to stop fiscal waste, the government’s failure to translate generated savings into public welfare, coupled with persistent corruption across the energy supply chain, warrants a fresh approach.
Conversely, his running mate argued that President Bola Tinubu’s decision to remove subsidies immediately, without sequencing social safety nets, expanding domestic refining capacity, or building structural shock absorbers, threw the economy into a cost-of-living crisis.
We recall that Atiku and Obi originally campaigned in 2023 on platforms endorsing the removal of fuel subsidies, viewing the legacy under-recovery regime as corrupt and fiscally unsustainable. However, their updated political stance now directly critiques the abrupt implementation model President Tinubu executed on May 29, 2023.
Contrary to these narratives, available facts and data show that the preceding Muhammadu Buhari federal administration had already established the legal and fiscal frameworks for subsidy removal before the 2023 handover date.
Trajectory of Subsidy Removal Policy Before May 2023
The Muhammadu Buhari administration signed into law the legislative mandate to fully deregulate the downstream petroleum sector in August 2021. The Petroleum Industry Act (PIA) legally abolished petrol price-fixing mechanisms and required the market to transition to full cost-recovery.
The late President Buhari bequeathed a national budget that provided zero funding for fuel subsidy beyond June 2023, so continuing subsidy payments past June 30th would have constituted illegal, unbudgeted expenditure without legislative appropriation. By May 2023, fuel subsidy deductions were consuming nearly 100% of net oil revenues accruing to the federation account. This development compelled the then federal administration to rely on the Central Bank’s “Ways and Means” advances for administrative sustenance, thereby pushing debt-servicing ratios to unsustainable levels.
Our research showed that President Tinubu’s explicit, unscripted declaration during his inaugural address served as a decisive policy signal to close the transition window and eliminate administrative ambiguity. This is because a delayed or staggered announcement would have triggered speculative hoarding by marketers, artificial scarcity, and cross-border diversion as operators rush to exploit the remaining subsidised inventory.
Therefore, by ending the subsidy on day one, the administration signalled to international financial markets, rating agencies, and domestic stakeholders that Nigeria was committing to long-term structural reforms. We have seen the result in the endorsement of the national economy by virtually all global and domestic rating agencies and multilateral institutions.
While the immediate declaration effectively ended under-recovery deductions from the Federation Account, the administration subsequently rolled out a sequence of structural and social mitigation policies.
These policies include the Presidential Compressed Natural Gas Initiative (PCNGi), launched to establish a cheaper, domestic alternative to petrol for mass transit and commercial transportation to mitigate the direct impact of high PMS prices on commuters.
The immediate termination of subsidy deductions unlocked significant monthly allocations at the Federation Account Allocation Committee (FAAC), doubling and tripling revenue distributions to State and Local Governments to fund local social safety nets and infrastructure. At the same time, the administration introduced temporary wage awards for public sector workers, followed by the enactment of a new national minimum wage and targeted conditional cash transfer programmes for vulnerable households.
The administration prioritised bringing domestic mega-refining capacity online, culminating in the rollout of the Naira-for-Crude policy to decouple domestic refining feedstock from foreign exchange conversion bottlenecks.
The Deception of Atiku and Obi’s “Crude Discount” Model
At different fora, over the past two months, Atiku had proposed a model requiring the state to supply crude oil to local refineries at discounted or fixed below-market rates, framing it as a benign “production subsidy.” We, however, categorise this proposal as a dangerous populist deception designed to mask a massive fiscal drain under the guise of local industrial support.
Apparently, the proponents of the “restore subsidy policy” suffer a brazen misunderstanding of the ownership structure of crude oil produced in the country. Policy proposals that promise cheap energy through state-mandated crude discounts are economically unsustainable. They rest on the false premise that the state has unlimited, unencumbered crude oil it can give away without consequence.
The fact is that out of Nigeria’s total gross crude oil output (averaging between 1.35 million and 1.65 million barrels per day), the total physical crude that directly accrues to the Nigerian State (via NNPC Limited and NUPRC) is approximately 800,000 to 1,000,000 barrels a day, representing 55% to 65% of national production.
Subsidy Removal and Movement in National Consumption Data
Before the fuel subsidy was removed in 2023, official daily consumption figures often exceeded 65 million litres per day, a figure inflated by cross-border smuggling. Following deregulation and market-reflective pricing, illicit cross-border arbitrage declined sharply, revealing a lower baseline of true domestic demand.
In crude/refined oil volumetric terms, 45 million to 50 million litres per day translates to roughly 280,000 to 315,000 barrels of crude oil per day. In other words, in crude or refined oil volumetric terms, 1 barrel is 42 US gallons, or approximately 158.987 litres (commonly rounded to 159 litres).
To determine the exact monetary value Nigeria would lose daily to cross-border smuggling under former Vice President Atiku’s proposed “production-side crude discount/subsidy” model, we must model the smuggling volume against the international price arbitrage gap.
The Base Domestic Consumption (Deregulated Reality) equals 45 million litres per day (283,000 barrels per day). Because of underprice/capped or subsidised regimes such as pre-2023 or under Atiku’s target model, artificial demand surges back to 60 to 65 million litres per day due to illicit cross-border arbitrage into neighbouring Benin, Togo, Niger, and Cameroon. Daily smuggled volume will reach 15 to 20 million litres per day, or about 94,000 to 126,000 barrels per day.
Arbitrage/Discount Delta (The Subsidy Value per Litre)
Assuming Atiku’s crude discount model aims to push domestic pump prices down to a subsidised target of, for instance, ₦500/litre when the true international landed cost is ₦1,100/litre, the implicit state subsidy equates to ₦600 per litre, i.e. $0.42 per litre at ₦1,400/$. Daily physical loss would equal the smuggled volume of about 20,000,000 litres per day (approximately 126,000 barrels per day).
Direct fiscal subsidy loss in Naira and US Dollars would equal 20,000,000 litres smuggled a day multiplied by a ₦600 discount per litre, which will equal ₦12 billion a day. Converted to US Dollars at an exchange rate of ₦1,400/$ would equal a daily loss (USD) of ₦12,000,000,000 divided by 1,400, which will equal eight million, five hundred and seventy-one thousand, four hundred and twenty-eight dollars ($8,571,428) a day. This amounts to N4.38 trillion in Naira terms annually and $ 3.12 billion in dollar terms, respectively.
Economic Implications of the Loss
Forfeiture of Sovereign Revenue: The ₦12 billion lost daily is not merely “cheap fuel” for Nigerians; it represents direct revenue foregone from the state’s equity crude sales. That capital is diverted from the Federation Account Allocation Committee (FAAC) pool and effectively subsidises neighbouring economies.
As smugglers divert subsidised products to capture higher profit margins in neighbouring markets, it causes artificial local supply shortages, stock-outs at filling stations, and prolonged vehicle queues across border states.
Supplying an additional 20 million litres per day to feed cross-border smuggling consumes an extra 126,000 barrels of crude feedstock daily; this represents nearly 15% of Nigeria’s total state equity crude accrual spent on servicing regional arbitrage rather than national development.
In addition, offering crude oil below global spot prices incentivises illicit trading practices, including unrefined crude exports or product smuggling across land borders to capture lucrative international price differentials.
Review of Obi, Kwankwaso’s Subsidy Models
For Obi, subsidy restoration is explicitly conditional on eliminating systemic corruption across upstream, midstream, and downstream sectors, arguing that clearing artificial margins will significantly lower the baseline cost of subsidising fuel. He describes the model as targeted budgetary allocation and corruption savings.
Just like Atiku’s model, Obi’s approach prioritises scaling local refining capacity through partnerships with private developers (such as modular refinery operators and major industrial refiners). The government would guarantee local crude oil supply to domestic refiners in local currency (Naira) or at competitive terms, insulating them from foreign exchange bottlenecks.
While this model aims to leverage private capital for industrial growth, it presents practical trade-offs. Even with local crude allocation, domestic refineries price their output against international benchmarks (such as Brent crude) to cover global operational standards and debt obligations denominated in foreign currency. Additionally, managing “market-reflective returns” alongside price moderation requires transparent regulatory bodies to prevent oligopolistic pricing or cartel behaviour among private refiners.
We have also observed a blatant misrepresentation of reality by advocates of subsidy restoration who continue to suggest that Nigeria, as a sovereign state, can determine the price of its crude differently from international oil-pricing benchmarks. Nothing can be farther from the truth. Crude oil does not sell at arbitrarily assigned administrative prices; it trades on global commodity exchanges (such as ICE and NYMEX) using standardised international benchmarks. Nigerian crude grades like Bonny Light, Forcados, and Qua Iboe are priced at a differential relative to Brent Crude. These benchmarks are determined 24 hours a day by millions of buyers, refiners, institutional investors, and hedgers trading futures contracts based on worldwide supply, demand, and geopolitical risk assessments.
As a test of the knowledge and understanding of the subsidy models they have proposed, we invite Atiku and Obi to respond to the underlisted questions publicly:
1. How Will the Model Handle Geopolitical Supply Shocks?
If Middle Eastern maritime disruptions (e.g., the Strait of Hormuz) push international crude prices well past $110/barrel, thereby expanding the under-recovery liability exponentially, will your government absorb uncapped fiscal losses? How would it absorb them, or will it abandon the price moderation target midway?
2. How Will Private Refiners Be Compelled to Accept Discounted Margins?
Facilities like the Dangote Petroleum Refinery and private modular refiners operate as commercial, profit-driven entities with dollar-denominated capital obligations and international investors. How will an Atiku/Obi-Kwankwaso administration compel private refiners to sell refined PMS below international market parity without violating the Petroleum Industry Act (PIA) 2021 or causing supply disputes and market walkouts?
3. How Will Illicit Cross-Border Diversion Be Prevented Without Price Parity?
Artificially suppressing Nigerian pump prices below prevailing market rates in neighbouring countries (Benin, Togo, Cameroon, Niger) instantly creates a lucrative price differential. What concrete, enforceable mechanism—beyond generic promises of “better border policing”—will prevent Nigerian taxpayers’ money from subsidising fuel consumed across West Africa?
4. How Will Artificial Demand Surges Be Managed?
Lowering domestic fuel prices has historically inflated daily demand figures (from 45 million litres a day under market pricing to over 65 million litres a day due to hoarding and smuggling). Does the proposed model factor in the added fiscal cost of subsidising this extra 20 million litres per day, and how will it manage the impact on national revenue?
5. What Is the Exact Technical Definition of “Targeted” Subsidy?
For Obi/Kwankwaso, if the subsidy is “targeted” rather than universal, who qualifies to purchase subsidised fuel, and how will it be administered at the pump? Will it rely on digital vouchers, transport worker subsidies, or direct utility rebates? If administered universally at the filling station, how would it differ from the previous blanket subsidy regime?
6. How Will Price Controls Be Enforced Across Private Retail Outlets?
With thousands of independent petroleum marketers operating across 36 states and the Federal Capital Territory, what institutional regulatory body will enforce price caps without creating artificial hoarding, diverted supply, and long petrol queues?
Fuel Price Reduction in a Zero-Subsidy Scenario
When you combine the downsides of Atiku, Obi, and Kwankwaso’s models, subsidy-return advocacy becomes unnecessary. If the Strait of Hormuz were opened today, Brent price would most likely fall to $75 a barrel.
A drop in global Brent crude oil price to $75 per barrel, which is Nigeria’s 2026 budget benchmark crude price, represents a significant easing of international energy market pressures. In a fully deregulated downstream petroleum market—and taking into account structural interventions like domestic refining (Dangote Petroleum Refinery) and the Federal Government’s Naira-for-Crude policy- this price shift will trigger distinct economic outcomes for domestic petrol pricing and state revenue.
At $75 a barrel of Brent crude oil grade, three domestic retail price reduction scenarios emerge with connection to foreign exchange movements:
Scenario A: Stable/Appreciating FX Rate (Base/Optimistic Model)
Assumptions: Brent at $75 a barrel; USD/NGN exchange rate remains stable or strengthens to between ₦1,250 and ₦1,350. The landed cost of petrol will drop considerably to about ₦650–₦750 per litre. We project that competition among local marketers and domestic refiners will force retail pump prices down significantly across filling stations, directly relieving consumers and small businesses.
Scenario B: Mild FX Depreciation (Moderate Model)
Assumptions: Brent at $75 a barrel; USD/NGN depreciates moderately to ₦1,450 – ₦1,550/$. Cheaper crude feedstock offsets currency weakening, keeping landed costs around ₦780–₦850 per litre, while retail pump prices stabilise at moderate levels without steep increases, keeping energy inflation in check.
Scenario C: Domestic Naira-for-Crude Processing (Structural Buffer Model)
Assumptions: Local refineries purchase crude feedstock in Naira at an international benchmark equivalent ($75 a barrel evaluated in NGN), eliminating international shipping, port charges, and import tariffs. Acquisition costs drop further, bypassing foreign exchange conversion bottlenecks. Domestic refining will provide the lowest price floor for petrol at about N760 and ensure nationwide product availability while preventing localised supply queues.
To this end, it is important to recall that the depot/ex-gantry price for PMS at Dangote Refinery by February 28 2026, was ₦774 per litre and could have dropped further, but for the disruption in the Strait of Hormuz.
While lower crude prices reduce gross dollar earnings per exported barrel, the government faces no pressure to reintroduce fuel subsidy, or discounted crude oil rate to refiners.
Conclusion
Had Nigeria retained the petroleum subsidy regime post-May 2023, it would have been an economic catastrophe. That year, the national economy was careering toward structural insolvency and sovereign default.
By 2022, subsidy payments consumed over ₦4 trillion annually—exceeding total federal government revenues and forcing the country to borrow simply to service consumption. Retaining the subsidy while domestic production stagnated and global interest rates rose would have utterly exhausted Nigeria’s foreign exchange reserves. This was exemplified by the nation’s net reserves, which stood at an abysmally low $859 million even though gross reserves were $ 34.12 billion as at 2023, and could barely fund less than a month of imports.
The ultimate result would have been imminent failure to service domestic and external debts, triggering international credit rating downgrades and isolation from global capital markets. The government would have been forced to rely on massive Central Bank Ways and Means advances to finance fuel consumption. This would have led to hyperinflation far exceeding current levels. At the same time, states and local governments would have faced total revenue dry-ups, leading to systemic non-payment of public sector salaries and pensions, and zero capital expenditure for critical health, education, and security infrastructure.
While the immediate socio-economic toll of subsidy removal—skyrocketing transport costs, elevated food inflation, and diminished purchasing power—has inflicted hardship on the population, non-removal was an unsustainable luxury Nigeria could no longer fund and would have crashed the economy.
Ultimately, avoiding the removal of fuel subsidy would have led to total economic collapse.
Omoniyi M. Akinsiju, PhD
Chairman,
Independent Media and Policy Initiative (IMPI)
October 2026
