The stability of petrol pump prices in Nigeria amidst the rise in oil prices and the naira’s continuous fall in the forex market support reports that the federal government is back paying subsidies for Premium Motor Spirit (PMS).
Brent Crude price stood at $94.20 per barrel while WTI Crude and Bonny Light sold for $91.26 and $97.17 respectively on Wednesday. The price surge has yielded an excess gain of about $20 above Nigeria’s $75 2023 oil benchmark – a development expected to have shot up the price of petrol above N800 per liter in Nigeria.
Also, the naira’s depreciation in the exchange market has seen the dollar rising by 2.93%, selling at N983/$1 as of Wednesday afternoon.
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Oil marketers last month when the naira was trading at N945/$1, warned that petrol prices would hit N680 per liter and N720 per liter as the dollar rises.
“Once there is a slack in the naira against the dollar, there is going to be an effect. The demand and supply of forex is a key factor. We should also understand that it is not only petroleum products that use forex,” the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike, was quoted by The Punch as saying.
“Other manufacturers who import one thing or the other are also searching for dollars. So, the surge for dollars has continued to increase. So now that the dollar is hitting N910 to N940, and approaching N1,000, you should expect to buy PMS at the rate of N750/liter.
“It is simple mathematics, once the dollar is going up, have it in mind that the prices of petroleum products would definitely increase because the products are dollar-driven,” he added.
The stability of petrol pump prices amid the surge in oil prices and the decline of the naira has been fingered as credence that the government is silently paying subsidies through the Nigerian National Petroleum Company Limited (NNPC).
In August, the NNPC issued a statement, allaying fears that the price of petrol was about to rise further to N720 per liter, following a threat by the Nigerian Labour Congress (NLC) to embark on a nationwide strike. The company said it has no plan to increase PMS pump prices as widely speculated, urging Nigerians to “buy the best quality products at the most affordable prices at NNPC Retail Stations nationwide.”
Against this backdrop, experts believe that there is more to the fuel subsidy removal than meets the eye, even though the federal government has maintained that the subsidy has been totally removed and that it does not plan to reintroduce it.
“The PMS subsidy was removed. Thus NNPC sold at total market prices, that’s why FAAC got almost a trillion naira. Then President BAT [Bola Ahmed Tinubu] promised “no new price hikes”, thus subsidy payments were reintroduced to keep local prices stable, economist, Kalu Aja said. “Stay factual. The problem with all these is that there is no FGN or Federation document removing, replacing, or even amending PMS subsidy; all we have as official documentation is the NNPC Pricing memo.”
The reinstatement of the fuel subsidy was confirmed by a report of the Federal Account Allocation Committee (FAAC), which stated that the NNPC used $220m out of the $275m it received as dividends payable to Nigeria, to pay petrol subsidy. The report added that the NNPC held back $55m for unexplained reasons.
Earlier this month, The Guardian reported that a significant monthly loss of about N318 billion (approximately N10.6 billion daily) is currently being incurred on petrol, and this may be categorized as under-recovery by NNPC Limited. This situation mirrors a previous scenario that occurred during the former administration of Muhammadu Buhari, where the government covertly reinstated fuel subsidies and labeled them as under-recovery in the books of the NNPC.
Some analysts believe that considering Nigeria’s current economic situation, Nigerians cannot afford to buy petrol at international rates. Thus, they have called for targeted subsidy.
“Sadly I concede that PMS subsidy is here to stay. The Nigerian people will not accept pain at the fuel pumps if the politicians do not share that pain with them. Unless oil prices recede, 100% PMS removal is a dream.
“My position had been that not all Nigerians should pay full price for energy, the subsidy must be targeted at the poor and vulnerable and the strategic job-creating sectors in Nigeria e.g. textiles and agriculture,” Aja said, adding that no one will argue if farmers are subsidized with cheap fuel if that leads to cheaper food.