By Oluwafemi O. Toriola
Atiku Abubakar – the Presidential Candidate of the African Democratic Congress (ADC) has promised
to re-introduce petrol subsidy if elected as the president of the Federal Republic of Nigeria (Nigeria) in
2027. The re-awakening of petrol subsidy discourse has generated strong reactions from the ruling
party, the organised private sector (OPS), economists and trade associations. To some, it is a “renewed
hope” while others consider it as a mere campaign strategy underpinned by populist thinking. It is a
promise of hope to millions of low-income consumers and households, workers and businesses who
have been severely impacted by petrol subsidy removal for the past three and a half years, while
perceived as a mere reflection of political desperation and populist campaign to those with
administrative, legal, operational, fiscal and investment concerns. Both schools of thought are valid.
The proposed subsidy re-introduction must be backed by a clear implementation strategy or model;
to evaluate the feasibility, costs and benefits of the proposal, and align with any of the two schools of
thought. Hours after first making a vague statement of intention, Atiku explained his proposed model.
The model has four (4) key features: crude oil will be supplied to local refineries serving the local
downstream market at preferential rates, cost under-recovery (subsidy) will be based on budgetary
provisions, annual subsidy (cost under-recovery) amount will be explicitly stated as a fixed budgetary
allocation, and the subsidy scheme will be anchored on adequate firm analysis, transparency and
discipline. These features present significant opportunities while a few concerns are inherent.
A comparative analysis of Atiku’s proposed subsidy model affirms its supremacy to the old subsidy
regime in several aspects. First, the proposed subsidy model is localised – crude oil is supplied only to
domestic refineries, targeted at refineries that supply refined products to the local market. This
eliminates the logistical challenges, risks and costs associated with international arrangements as was
the case in the old regime. Furthermore, cross-border smuggling becomes easier to eliminate,
increasing the logistical, feasibility and fiscal efficiency of the proposed scheme. Second, establishing
cost under-recovery on budgetary provisions brings the subsidy scheme into FG’s budget. This will
eliminate the opaqueness and corruption that characterised the old subsidy regime; which was neither
included in the budget nor open to legislative oversight and public scrutiny. Atiku’s proposed model
therefore marks a complete divergence from the old regime that was “effectively designed for
corruption”.
Third, pre-determining a fixed annual budgetary allocation as an upper limit for annual subsidy
payments (cost under-recovery) hedges government’s expenditure against adverse global energy price
dynamics, making subsidy expenditure predictable. Fourth, the model’s anchoring on
multidimensional firm-level analysis, transparency and discipline, will enhance operational
effectiveness and efficiency, as well as support the control of antitrust practices and issues around fair
pricing; which should not be confused with price fixing or price legislation – which is no longer possible
in the deregulated local petrol market. The four key features of Atiku’s proposed model therefore
clearly show that the model significantly addresses the inefficiencies that made the old regime fail.
But has the proposed model explicitly addressed all concerns about subsidy in the current legal and
administrative landscape? The answer is a “no”. One of the concerns of the critics of the proposed
model is that the NNPCL has now been commercialised and that the Petroleum Industry Act (PIA) has
established the full implementation of deregulation policy. It is important to state here that NNPCL
commercialisation and PIA-enforced deregulation are in real terms, no concerns. The commercialised
NNPCL can continue its operations as usual on a commercial basis and report subsidy-based cost
under-recovery as drawings on FG’s equity, which can be replaced with parts of profits made from the
NNPCL’s other operations as well as periodic recapitalisation by the FG. Alternatively, a share of social
security budget can be allocated to offset the amount of cost under-recovery, designating such subsidy
arrangement as a form of social security and systemic intervention within the MSME ecosystem. Atiku’s
proposed subsidy model therefore can be fiscally sustainable with significant social benefits and
welfare impacts.
As regards the PIA consideration, the PIA does not in any way prevent subsidy since subsidy is not price
legislation. Subsidy does not determine market price or set an upper limit on it; as price legislation
does. Therefore, what the PIA effectively prohibits is price legislation, not subsidy. Another concern is
about the feasibility of the crude oil swap deal-based subsidy model. This is also not much of a problem
as the NNPCL manages the FG’s equity share of oil produced by Joint Venture (JV) and productionsharing contracts with international and local oil companies, valued at not less than 445,000 barrels
per day, while the NNPCL’s local refineries are currently not working or are at abysmally low operating
capacity. This crude can therefore be used to facilitate the proposed cost under-recovery-based
subsidy scheme.
It is also concerning that the current petrol price is highly elevated and that Atiku’s proposed model
may not significantly reduce price. The elevated price is primarily driven by the floating exchange rate
regime that has led to a sharp depreciation of the Naira. A significant impact of the proposed subsidy
model will therefore require an adjustment of the exchange rate regime to a managed-floating system
with a target of 750-800 Naira per US Dollar. The success of the proposed model therefore requires
the “very necessary” exchange rate policy rethinking as Nigeria cannot afford to sustain the current
floating exchange rate policy without any form of supply-side intervention by the CBN. Nigeria is a
developing country with dependence on imports for business operations, technology, finance and
supply chains, and it is therefore costly to prioritise substantial accretion to foreign reserves over
sustainable exchange rate.
The re-awakening of the petrol subsidy debate by Atiku therefore introduces opportunities for
renewed hope, with strong potentials for improved social welfare, MSME performance, economic
growth and inclusive development because such a disciplined planned subsidy model will address the
needs of the informal sector and MSMEs that account for not less than ninety-eight per cents of all
businesses and 45 per cent of total employment in Nigeria. The current outright removal of petrol
subsidy is not sustainable in a country like Nigeria, and has created explicit and implicit financial social
costs that by far outweigh its benefits. On the basis of cost-benefit analysis, it is rational to have a
rethink. The “Nigeria’s Reform Scorecard: Benefits, Costs & Harm Prevented” presented by the
Minister of Finance in Abuja on August 19, 2026, highlighted that the total petrol subsidy savings
mobilised across the federation was estimated at a controversial ₦15.8 trillion.
In addition to the savings from exchange rate policy adjustment increased the total incremental
resources (total benefits of the “reforms”) to an estimated ₦20.4 trillion between June 2023 and
December 2025. In the same period, additional expenditure pressures induced by the subsidy removal
was estimated at approximately ₦30.64 trillion according to the same report. By implication, the
financial costs of the “reforms” by far outweigh the financial benefits. For a government that embarked
on the “reforms” on the basis of fiscal sustainability, this represents counterintuitive outcomes that
strongly suggested that the “reforms” in the first place were poorly designed without a careful analysis
of costs and benefits. From an economist’s perspective, the increased cost pressures of approximately
₦30.64 trillion trillion only reflect the explicit component of the total opportunity costs of the “reforms”.
It is important to also value the loss in social welfare and financial losses to businesses in monetary
terms, in addition to the approximately ₦30.64 trillion and then, estimate what the total opportunity
costs of the “reforms” have been. No doubt, the current “reforms” reflect economic mismanagement
that has been sustained by government propaganda, arrogance, insensitivity to social cost-benefit
considerations and complicity of institutions and individuals with vested interests. Rationally, the
current “reforms” being implemented by the current government are unsustainable and must be
revisited. The re-awakening of the subsidy debate by Atiku is therefore an interesting opportunity to
implement a sustainable subsidy model for net social benefits and inclusive development.
Against the propaganda demonising petrol subsidy in Nigeria, the real problem is not the subsidy itself,
but the mental laziness and insensitivity to the imperatives of rigorous policy design and
implementation; with which the petrol subsidy was removed in 2023. Subsidies are crucial in critical
sectors of the economy from both growth and welfarist perspectives. For instance, as a strategy to
unlock private capital for development financing, the Bank of Industry (BoI) recently raised ₦250
billion via the domestic capital market through its inaugural Series 1 bond (under a $1 billion multicurrency programme). This would not have been possible without the FG’s ₦100 billion intervention
used as blending instrument to make the commercially-rated debt financing suitable for development
finance – subsidisation of interest rates on BoI loans to MSMEs.
Energy costs constitute a major cost driver to MSMEs, workers and consumers and therefore requires
the same attention as development financing. Petrol subsidy is very crucial in this regard and a planned
and strategic design and implementation of a petrol subsidy scheme is a strategic economic
management practice. The Atiku’s proposed model is well-thought out and intrinsically addresses the
challenges that undermined the old regime. It shows evidence of structural thinking and strategic
economic management for a country like Nigeria. The model must be considered, refined and
implemented as sustainable path to economic growth, inclusive development and domestic energy
sufficiency.
Author:
Oluwafemi O. Toriola is an Economist and Strategy Analyst.
He is currently the Managing Consultant at RMBS Stra
