President Tinubu says scrapping fuel subsidy has saved $1.32 billion

Nigeria has saved over 1 trillion naira ($1.32 billion) in just over two months by scrapping a popular but costly subsidy on petrol and moved to unify its multiple exchange rates, President Bola Tinubu said on Monday.

Tinubu is under pressure as prices soar following the country's boldest reforms in decades, which labour unions say have hurt the poor.

A meeting between unions and government to try to avert a planned strike from Wednesday ended without an agreement late on Monday, union officials said.

In a television broadcast, Tinubu defended his decision to scrap the petrol subsidy, which he said benefited a few elites and that the reforms would help boost the economy.

"In a little over two months, we have saved over a trillion naira that would have been squandered on the unproductive fuel subsidy which only benefited smugglers and fraudsters," Tinubu said.

The president said he was aware of the hardship caused by removing the subsidy and was "monitoring the effects of the exchange rate and inflation on gasoline prices," adding that he would intervene if and when necessary.

The World Bank said last month Nigeria could save up to 3.9 trillion naira this year alone after Tinubu's reforms but warned of growing short-term inflationary pressures.

Unions are pressuring Tinubu to offer relief to households and small businesses. Tinubu announced a 500 billion naira package which includes mass transit buses and cheap loans to farmers and small businesses to boost employment.

Earlier on Monday, the government said it had released grains to families, directed authorities in public schools to defer hiking school fees and will provide buses to ease transport costs for students. It also plans to set up a fund from the subsidy savings to build infrastructure.

"Sadly, there was an unavoidable lag between subsidy removal and these plans coming fully online. However, we are swiftly closing the time gap," Tinubu said. 

By Felix Onuah, Reuters

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Squeeze on Europe's refiners due to end of fuel subsidy in Nigeria

One of Europe's main markets for gasoline has shrunk, threatening to squeeze European refiners, after Nigeria removed fuel subsidies, which destroyed much of the country's domestic demand and a regional market for smuggled fuel.

North America and West Africa (WAF), with Nigeria at the helm, historically have been the top two destinations for petrol exports from Europe, which produces more gasoline than it uses, meaning its refiners rely on exports to support profit margins.

A steady decline in European refining margins in recent years, as competition from the Middle East, the United States and Asia grew, was reversed when fears of fuel supply shortages boosted profits after Russia's invasion of Ukraine.

So far, benchmark profit margins for gasoline in northwestern Europe have held firm at around $27 a barrel, Refinitiv Eikon data shows.

They have been supported by demand from North America, a shortage of high quality blending materials, disruption caused by low water levels inland and local refinery outages.

But analysts say the reduction of flows following the upheaval in Nigeria will increase pressure on European refiners, and any winners are likely to be newer Middle Eastern refineries.

At the end of May, Nigeria's President Bola Tinubu scrapped a popular but expensive subsidy on the fuel, which cost the cash-strapped government $10 billion last year. Petrol demand in response fell by 28%, official data showed.

Symptomatic of the fall in demand, onshore gasoline stocks in Nigeria have climbed to 960,000 tonnes from an average 613,000 tonnes between January and June, said Jeremy Parker at the CITAC consultancy which focuses on Africa's downstream energy market.

Meanwhile, the black market for smuggled subsidised Nigerian fuel in Togo and neighbouring Benin and Cameroon has collapsed, further reducing demand for shipments via Nigeria.


There is no reliable data on how much fuel was smuggled out of Nigeria under the subsidy regime, but a comparison of estimates from official and independent sources indicate more than a third of petrol could have left state oil firm NNPC's depots every day to be sold illegally abroad.

Without the subsidy, the financial incentive for smuggling disappears.

Average monthly West African (WAF) gasoline imports fell by 56% in the second quarter compared with the first, according to Refinitiv Eikon data.

"The key point is demand from West Africa is drying up," said Refinitiv Lead Oil Analyst Raj Rajendran.

Seasonally, June loadings from the Amsterdam-Rotterdam-Antwerp (ARA) hub to West Africa fell to 629,000 tonnes this year from 895,000 tonnes last year and 1.2 million tonnes in 2021, Refinitiv data showed.

Loadings dropped to 627,000 tonnes in July so far this year from 1.5 million tonnes last year and 1.4 million tonnes at the same time in 2021.

By contrast ARA exports to the United States rose to reach 695,000 tonnes so far this year in July, compared with 449,000 tonnes last year, although they were down from 791,000 tonnes in 2021.

Gasoline stockpiles in the ARA hub are higher seasonally than they have been at least since 2003, according to Insights Global data, as U.S. exports from the region did not fully compensate for the lower WAF exports.

Nigeria, Africa's largest crude oil producer, relies heavily on imports because of its inadequate domestic refining capacity.

Imports, however, are increasingly unaffordable as Nigeria's naira has weakened to record lows since the central bank removed currency restrictions in June. At the same time, inflation is near two-decade highs.

The huge, much-delayed Dangote refinery was designed to address the domestic supply shortfall, but full 650,000 barrel per day production is unlikely before the second quarter of 2025, CITAC estimates.

Analysts said it was possible demand would not fully recover.

"Demand for barrels into WAF may be lower at the moment as the market sorts itself out again post-subsidies. There may simply be a baseline decrease in demand," said Sparta Commodities gasoline market analyst Philip Jones-Lux.

For alternative supplies that are cheaper and therefore more palatable for Nigerian buyers, Jones-Lux points to imports from the Mideast Gulf and Russia. "The volumes appear small still, but not insignificant," he said.

Sparta estimates that fuel from the Mideast Gulf is around $35-$50 per tonne cheaper than ARA imports, around triple last week's spread, which could mean increased volumes into West Africa of Middle Eastern fuel.

An increase in direct Russian gasoline flows into West Africa started in January, but cumulative volumes, while growing from virtually non-existent in recent years to around 800,000 tonnes year-to-date, are still small, according to Refinitiv Eikon data.

"It’s not like (Russia is) capturing a bigger share of that market from European refiners. The challenge is coming from the new refineries in the Middle East that are expanding from their traditional East Africa market to now include West Africa and beyond even to the Americas," Rajendran said.

By Shadia Nasralla, Reuters

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8 Killed in fuel explosion in Nigeria

At least eight people were killed when a fuel truck exploded in southwestern Nigeria as residents were trying to siphon petrol out of it, police said on Monday.

The truck was involved in an accident on Sunday night in a neighbourhood of Ondo state which caused it to veer off the road and topple on its side, the police said.

"Some people went there to scoop fuel, in the process the tanker exploded," said Ondo state police spokesman Fumilayo Odunlami-Omisanya.

The price of petrol has more than tripled since the removal of a decades-old subsidy at the end of May, hitting motorists and households and small businesses who use petrol generators for power.

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Video - President bola Tinubu on a mission to change Nigeria

Less than a month into his tenure, President Bola Tinubu has begun implementing a raft of reforms long sought by bankers, economists and multilateral lenders in order to revive Africa's biggest economy. The radical changes include removing a fuel subsidy that cost the state 10 billion U.S. dollars annually.

CGTN

President Tinubu defends end to fuel subsidy

Nigerian President Bola Tinubu on Wednesday defended the West African nation’s decision last week to stop subsidizing fuel, a move that has pushed up prices for transportation and commodities.

Tinubu appealed for patience as millions of citizens face additional economic hardship. The money saved by ending the decades-old subsidy will help the government’s efforts to fight poverty and implement other initiatives, he told governors in a meeting in Nigeria’s capital city, Abuja.

“We can see the effects of poverty on the faces of our people. Poverty is not hereditary, it is from society. Our position is to eliminate poverty,’’ a statement from the Nigerian presidency quoted Tinubu as saying.

The governors supported the subsidy’s removal and promised to work together in implementing it, the presidency’s statement said.

Though Nigeria is an oil-producing nation, it depends on imported refined petroleum products, and the government has subsidized the cost for decades.

But with oil revenues dwindling amid chronic theft and decreasing foreign investment, the government said the fuel subsidies are no longer economically sustainable. It budgeted 4.4 trillion naira ($9.5 billion) for the subsidies in 2022, far more than for education, health care and infrastructure combined.

Analysts, however, faulted the government’s decision to withdraw the subsidy without incentives in place, especially at a time when many Nigerians already struggle to cope with record high unemployment and poverty.

Inflation is at an 18-year high. Unions have threatened strike in protest of the subsidy decision.

Nigeria’s states have begun to adopt various measures seeking to assist citizens, especially workers commuting to work daily. Edo and Kwara states this week cut the work week from five days to three. Other states said Wednesday they are considering such measures as increasing the minimum wage of 30,000 naira ($65).

In Abuja and other parts of Nigeria, The Associated Press found businesses struggling from having to spend more money on fuel for generators. As many as 46% of Nigeria’s people do not have access to electricity, the World Bank says.

In Kano state, the economic hub of northern Nigeria, Mahmud Mudi, a taxi driver, said he had to halt his transport business because he was losing money due to higher gasoline prices.

“The situation is unbearable,” Mudi said. “As a family man, the already unfriendly economy has been worsened by this removal of fuel subsidy. I have had to suspend my taxi operations and rely on divine intervention.”

Rafi’atu Audi, a government employee in the state, said it was difficult to commute to work daily because of the sharp increase in transportation costs.

“Transport fares have shot up, but our salaries remain the same,” said Audi. “It’s painful (and) I cannot bear the costs anymore.”

By Chinedu Asadu, AP

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Main union in Nigeria to suspend strike over petrol subsidy

Nigeria's main labour union agreed after meeting with the government on Monday night to suspend a planned indefinite strike to protest the removal of a popular decades-old petrol subsidy, a signed resolution of the agreement showed.

The government had obtained a court injunction stopping Nigeria Labour Congress (NLC) from embarking on the strike from June 7, after petrol prices nearly tripled following the subsidy removal last week. Trade Union Congress (TUC) was also cited although it had not yet called for a strike.

On taking office a week ago, President Bola Tinubu immediately scrapped the costly subsidy, which began in the 1970s, causing an uproar from unions.

In 2012, a wave of strikes ensued when Nigeria tried to introduce a similar measure, with authorities eventually reinstating some subsidies. Tinubu, then in the opposition, was among those who opposed ending the subsidies.

A meeting between government representatives and NLC and TUC leaders agreed on Monday that the NLC would "suspend the notice to strike forthwith to enable further consultations."

NLC's executive is expected to meet on Tuesday to approve the agreement with government.

The parties would continue discussions on the union demands, including the upgrade of state-owned refineries so they can produce petrol locally to keep prices low.

Another meeting would be held on June 19 to discuss how to implement any agreements.

TUC, in a statement on Monday, issued a raft of demands to the government, including a rise in the monthly minimum wage to 200,000 naira (433.79) from 30,000 naira with effect from this month and that the new wage should not be taxed.

Tinubu said last week Nigeria needed to review its minimum wage but did not say to what level.

By Felix Onuah, Reuters

The aftermath of fuel subsidy removal announcement in Nigeria

The scrapping of oil subsidies in Nigeria by President Bola Tinubu has ushered in critical changes that will shake the country's economy. The declaration has seen pump prices go up in just under 48 hours with analysts saying that it will trigger a nearly 200 percent rise in petrol prices.

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Nigerian cities have been hit by long queues of motorists stocking up on petroleum products, President Bola Tinubu announced that fuel subsidies would be abolished.

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President Tinubu fuel subsidy remarks causes chaos in Nigeria

 

 

 

 

 

 

An off-the-cuff remark by Nigeria's new president during his inaugural speech caused chaos with snaking queues across the country at petrol stations.

After he had been sworn in on Monday, Bola Tinubu took his eyes off the teleprompter during his address to say: "The fuel subsidy is gone."

He was referring to a decades-long subsidy that has kept down the price of petroleum products.

The 71-year-old politician gave no timeframe or any more details about what is a major policy move. When a president last tried to remove the subsidy 11 years ago, protests erupted.

Within hours of Mr Tinubu's first address, hundreds of people had poured on to the streets, either in their cars or on foot with yellow jerrycans, to grab what they believed to be the last drops of fuel to be sold at a government-fixed price.

But only a few were lucky - many filling stations stopped selling altogether, while others unilaterally increased prices by more than 200%, triggering chaos and an artificial scarcity.

By the time the president's team clarified that the scrapping of the subsidy would not come into effect until the end of June - in line with the outgoing administration's budget - it was too late to stop the panic.

By Wednesday, even the state-owned oil company had said it would be raising the price of petrol.

Transport fares have already shot up, commuters are stranded at bus stops and the powerful labour union is now readying itself for a confrontation with the new government.

"By his insensitive decision, President Tinubu on his inauguration day brought tears and sorrow to millions of Nigerians instead of hope," Nigeria Labour Congress (NLC) leader Joe Ajaero said in a statement.

Despite its oil riches, Nigeria is unable to refine crude locally to meet demands.

The four state-owned refineries are moribund, forcing the country to import refined petroleum products which are then sold at a price fixed by the government.

So while people in the UK and Ghana, for example, were forking out £1.44 ($1.80) or 14 cedis ($1.24) respectively for a litre of petrol in May, Nigerians paid 185 naira ($0.40) - despite all three countries buying it from the same international market.

This has been the practice in Nigeria since the 1970s and most residents have grown up insulated from paying the actual price of petrol.

But Mr Tinubu says Nigeria can no longer do this because of dwindling revenue: the government has already set aside $7bn to subsidise fuel for the first six months of this year.

This amounts to 15% of the budget, more than the combined allocations for education (8.2%) and health (5.3%).

Subsidies are not necessarily bad. Many countries offer them in sectors ranging from agriculture to electricity in order to keep costs down for citizens.

But of major concern to Nigerians is corruption. Government agencies give conflicting figures for the amount of fuel imported, while dubious sellers have been known to divert the fuel to nearby countries to get higher rates.

Ironically, President Tinubu was at the head of the resistance in 2012 when a government last tried to end the subsidy.

He wrote then that the government had "tossed the people into the depths of the midnight sea", in a blistering attack on the policy, which was subsequently reversed.

Yet there is more of an acceptance now that the subsidy should be scrapped to free up money for essential public services like transport, health and education.

Analysts expect fuel to sell from anywhere between 250 naira and 350 naira after the current upheavals.

The increase may not seem huge, but it is likely to have far-reaching repercussions in a country where one in three people are unemployed, inflation is at a record 22% and 96 million live below the poverty line of $1.90 per day.

The situation is made worse by the fact that economy is run on thousands of fuel-sucking generators that power businesses, from barbershops to corporate skyscrapers, because of a lack of electricity.

Nigerians are already spending more than 60% of their income on food and transport. With the minimum wage stuck at $64 a month, many are fearing that they will be further impoverished.

"It is not sustainable," muttered one man at a petrol station in the capital, Abuja, after filling the tank of his SUV.

Mr Tinubu's announcement was not preceded by the usual talks with the unions to find common-ground.

In late 2021 when the last government toyed with the idea, it proposed a monthly cash advance of 5,000 naira to poor Nigerians to cover transport fares.

Many struggling Nigerians, used to seeing politicians mismanage the country's oil wealth, fear they may already be victims of a profiteering racket.

They are questioning why the pump price has already increased at both private and state-owned filling stations for what is likely to be older and cheaper stock.

They also wonder what will happen to the money the government has set aside to subsidise fuel for the month of June. Will it disappear or will it be used for their benefit?

There is a feeling that politicians want the people to make sacrifices without making any of their own.

"Had the president also reeled out cost-cutting measures by the government, such as selling a jet from the presidential fleet or reducing Aso Rock's [a reference to the presidential office] budget on refreshments, the message might have been better received," said another man at the Abuja petrol station.

It was also not the sort of first-day pronouncement many were expecting from a president who does not have a large dose of goodwill - he was elected by less than 10% of registered voters.

It is unlikely that Mr Tinubu will reverse the policy. Unlike his predecessor, Muhammadu Buhari, who leaned towards welfarism, he favours free market-driven forces.

Many Nigerians wanted Mr Tinubu to hit the ground running, but many wish he had stuck to the script at his inaugural address, which should have mentioned the "phasing out" of the petrol subsidy.

By Nduka Orjinmo, BBC

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