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# **Nigeria**

Nigeria provides universal price subsidies to two petroleum products: kerosene and, unusually, gasoline but not diesel fuel. In 2011, the subsidy bill reached 4.7 percent of GDP, with another 1 percent representing payment arrears to oil marketing companies paid out in 2012 (IMF 2013b). The fuel subsidies are estimated to have cost the government US$35 billion between 2011 and 2014. They are large and unsustainable by any measure, and are highly regressive. They benefit the better‐off disproportionately because it is much rarer for the poor to own motorized vehicles or backup power generators consuming gasoline than the rich, and kerosene is seldom found at the official price because of large‐scale diversion. One analysis found that more than half of the gasoline subsidy is captured by the top 10 percent of the population. And while the subsidy bill falls with falling oil price, the government’s oil revenue also falls, resulting in much less volatility in the subsidy share of the government oil revenue than one might expect (World Bank 2015c).

The subsidy for kerosene has had a checkered history. In June 2009, President Yar’Adua issued a directive abolishing the subsidy. The Petroleum Products Pricing Regulatory Agency, through which all subsidy payments are channeled, stopped granting subsidy payments for kerosene as a result, and the federal government did not allocate a budget for the kerosene subsidy in 2010. However, the Nigerian National Petroleum Corporation (NNPC), which is the national oil company of Nigeria, continued to provide subsidized kerosene, and in February 2015, President Jonathan officially announced that the kerosene subsidy had not been stopped. The legal case for continuing the kerosene subsidy is said to rest on the presidential directive not having been gazetted.

As a result of the NNPC’s action, the price of kerosene for household use has been frozen nominally at ₦50 (US$0.25) per liter, providing enormous financial incentives for commercial malpractice. It is rare to find kerosene on the market selling at the official price of ₦50 a liter. There have been rumors of five different channels for abusing the kerosene subsidy: (1) black markets, (2) diesel fuel adulteration, (3) diversion to the aviation fuel sector, (4) smuggling to neighboring countries, and (5) presenting it as having just been imported and claiming the subsidy reimbursement for the second time ( _All Africa_ 2011). A forensic audit into the affairs of the NNPC released in February 2015 reports that actual retail prices of kerosene were in the range ₦120–140 per liter (PwC 2015). The official price of gasoline is also not enforced, although the price differences are smaller than for kerosene. Payment arrears to oil marketers have historically caused fuel shortages, pushing up the actual prices paid. In December 2015, in the face of continuing gasoline shortages, the government agreed to pay ₦407 billion (US$2.1 billion) of overdue reimbursement payments to oil marketers.

The National Bureau of Statistics began surveying the actual prices paid by households in June 2014, and makes the data available by state. The national average surveyed prices are shown against the official price in Figure 20. The results are indicative of varying degrees of gasoline shortages, with not a single state reporting the official price between April and August 2015, and again in November 2015, when the highest surveyed price was recorded—₦187.5 (US$0.94) per liter, or more than double the official price and much higher than the price that would have prevailed in a deregulated market.