Energy Subsidies in Nigeria
The GSI’s program of work in Nigeria undertakes research and policy engagement on subsidies for fuel consumers and renewable energy, with the intention of contributing to the following policy objectives:
- Reduce overall fossil fuel subsidy expenditure
- Improve the fair social distribution of subsidy expenditure
- Ensuring that subsidy reforms are gender sensitive and promote gender equality
- Increase clean energy access and use, particularly among poorer households
Since the end of 2015, the Buhari government has introduced major reforms to gasoline and kerosene subsidies, with a new “price modulation” policy that has seen upward adjustments in the price of both fuels—at the same time that major problems with supply continue, driving domestic prices above official levels in many areas. This study conducts a detailed analysis of the compensation mechanisms that could be used to mitigate the impact of fuel subsidy removal on weak and vulnerable segments of Nigerian society.
Over the past few years, the Nigerian government have been challenged by how to implement subsidy reform in a way that is politically acceptable and does not harm the most vulnerable. One option for consideration was to attempt the introduction of some form of "dual pricing"—allowing the same fuel to be sold at two different prices, either by creating a market-priced brand and a subsidized brand, introducing a quota system for a fixed quantity of subsidized fuel or some other mechanism. This briefing note was prepared to share international experiences of dual pricing with Nigerian policy-makers. The briefing concludes that dual pricing is rarely implemented without prohibitively costly levels of leakage, illegal diversion and shortages, particularly in the case of liquid petroleum products.
It is well understood that increasing fuel product prices can be a shock for low-income households, requiring careful mitigation strategies to ensure that subsidy reform does not harm the most vulnerable. But little research has been conducted on understanding the gender disaggregated impacts of subsidy reform: How do price increases affect individual men and women? Do impacts differ in accordance with the linkages between gender roles and energy use? This policy brief summarizes initial research on this topic in Nigeria, focusing on how women may be affected by the reform of subsidies to kerosene, which is widely used across the country as a cooking and lighting fuel.
Most people in Nigeria see fuel subsidies as their share of wealth from the country's oil reserves. However, evidence suggests that the subsidies—worth over NGN 2.19 trillion (US$ 13.6 billion) in 2011—mostly benefit the well-off. Significant amounts of expenditure have simply been lost to corruption. Moreover, the subsidies have increased the reliance on fuel imports and contributed to the lack of investment in oil refining capacity. This guide provides an accessible introduction to the best available information on the costs and benefits of these energy subsidies in 2012. It provides an overview of how various types of energy are subsidized; the implications of these subsidies on various aspects of sustainable development; and how they might be or are being reformed, including a summary of lessons learned from international experience.