January 18, 2019

Energy Subsides in Nigeria: Opportunities and Challenges

Various forms of consumer energy subsidies[1] are implemented in Nigeria. Three energy products are particularly subsidized: gasoline (Premium Motor Spirit –PMS), household kerosene (HHK), and electricity. In the case of petroleum products (PMS and HHK), government provided subsidies by paying petroleum products marketers the difference between the market rate and the government approved retail price[2]. For electricity, the government required state utility companies to charge tariffs below the costs of electricity production, then it reimbursed as part of a lump sum and by under-charging the electricity sector for the cost of natural gas[3].While petroleum (fuel) subsidy has increased, other forms of energy subsidies (such as kerosene) have relatively fallen over the years. Notably, the proposed study focuses on petroleum subsidies in Nigeria, as it weighs most heavily on the Nigerian economy and the welfare of the citizens[4].

As in the case of most energy subsidizing countries, the main rationale for energy subsidies in Nigeria is to protect consumers from the negative effects of increases in petroleum prices, while promoting industrial growth. Also, in line with most oil-exporting countries, the provision of petroleum subsidies in Nigeria is driven by socio-political reasons – the perception that cheap petrol prices are an entitlement for citizens of an oil-wealthy country. However, despite the poverty alleviation justification for providing subsidies, there is strong evidence that Nigeria’s experience with subsidies has been marred with economic, structural, and political challenges, among others.

Download Label
March 13, 2018 - 4:00 am
application/pdf
1.24 MB
v.1.7 (stable)



Related

 

Nigeria Economic Update (Issue 39)

Nigerias external reserve fell marginally by from $25.36 billion to $25.16 billion. The decline likely reflects the continued sales of dollar by CBN amid fall in oil revenue. Similarly, the naira/dollar exchange rate depreciated marginally by 0.5 percent to N424/$ at the parallel segmentas also seen in preceding weeks. The continued depreciation likely points to banks low level compliance to CBNs dollar sales directive made in August, 2016, thus creating artificial dollar scarcity in the parallel market.