Bismarck Rewane, a revered economist who doubles as managing director of Financial Derivatives Company, recently suggested a radical change from conventional pump price fuel subsidy framework.
Speaking recently in a television interview Rewane urged the federal government to adopt a refinery-based subsidy framework that would channel all benefits directly to consumers.
He contended that rather than maintaining a broad subsidy framework, government could adopt a targeted approach that leverages local refineries to stabilise prices of refined petroleum products and reduce inefficiency.
Rewane argued that under the proposed refinery-based subsidy framework, government would supply crude oil to domestic refineries at subsidised rate and ensure 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”, said the revered economist.
He noted that the new system of subsidy framework will allow government to support a limited number of refiners instead of subsiding 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”, Rewane noted.
The suggestion on a radical change from pump price subsidy to refinery-based subsidy emanated from the debate triggered by surging pump prices of refined petroleum products engendered by the spike in crude oil price due to the Middle-East war.
Crude oil price rose from $65 to $113 per barrel following the blockade of the Strait of Hormuz by Iran and supply fears triggered by the war. Nigeria’s Bonny Light sweet crude now sells for $130 per barrel.
The spike in crude oil prices pushed up
the pump price of petrol by 50 per cent in some states in Nigeria. Currently, Lagos enjoys the cheapest pump price of petrol. It sells for N1,260 per litre, down from N1,360 it sold for last week. Diesel now sells for N1,950 per litre.
Before the war with Iran, the pump price of petrol in Lagos was as low as N860 per litre. As a result of the spike in the pump price of refined petroleum products, transport fares have risen by 50 per cent in most parts of Nigeria.
Along with the spike in transport fares is the spiraling food inflation which has returned to double digits as the cost of food haulage escalates.
A Lagosian bought a bag of garri in Benin at N14,000. The garri was dropped for him at Alausa in Lagos. From his home in Alakuko to Alausa he spent N15,000 on petrol to pick the garri.
The World Bank warned last week that Nigeria’s poverty rate has risen to 63 per as 140 million Nigerians now toil below poverty line.
The bank traced the rising poverty rate to double digit inflation rate and argued that the situation would be worsened by the renewed spike in inflation rates triggered by increase in the pump prices of refined petroleum products. The bank urged government to tackle inflation.
Rewane was silent on the rate at which the federal government should sell the subsidised crude oil to the refineries.
However, Blueprint.ngin a recent editorial urged the federal government to supply 400,000 barrels of crude oil daily to the Dangote Refinery at $70 per barrel and ensure that refined products from the subsidised crude oil is supplied directly to consumers.
The general view is that the policy would drop the pump price of petrol to N800 per litre and defuse the spiraling inflation.
The supply of crude oil to domestic refineries has generated deep controversy in Nigeria. There is a seemingly inexplicable reason for the crisis in the supply of crude oil to domestic refineries. The Dangote Refinery contends that it needs 19.5 million barrels of crude oil monthly to operate at full capacity of 650,000 barrels per day.
However, the Nigerian National Petroleum Company Limited (NNPCL) only manages to supply 5 million barrels monthly to the refinery. The managing director of Dangote Refinery, Mr. David Bird, said in a recent interview in the Arise Television that the crude oil supply situation from domestic sources was so bad that his company buys Nigerian crude from the international market at a premium of $18 per barrel and ship it home at an additional cost.
The Central Bank of Nigeria (CBN) notes that Dangote imported crude oil worth $3.6 billion for its operations in 2025. As a result of the hostile domestic environment within which Dangote Refinery operates, the landing cost of imported petrol is N153 per litre lower than that of Dangote Refinery.
Blueprint.ng aligns with Rewane’s refinery-based subsidy framework as a way of stabilising the pump prices of refined petroleum products in a bid to tame spiraling inflation.This newspaper calls on the federal government to fight inflation with the new policy.
