Empirical analysis of fuel price and subsidy reform in Nigeria

• DOI: http://doi.org/10.1111/opec.12003
• Published date: 01 September 2013
• Date: 01 September 2013
• Author: Andrew Erega Okosun,Uloma Jiburum,Harold Chike Mba,Maxwell Umunna Nwachukwu

Empirical analysis of fuel price and subsidy

reform in Nigeria

Maxwell Umunna Nwachukwu,* Harold Chike Mba** Uloma Jiburum* and

Andrew Erega Okosun*

*Senior Lecturer, Department of Urban and Regional Planning, University of Nigeria Enugu Campus,

400006, Enugu, Enugu State, Nigeria. Email: maxwell.nwachukwu@unn.edu.ng; Email:

uloma.jiburum@unn.edu.ng; Email: Andrew.okosun@unn.edu.ng

**Professor, Centre for Environmental Management and Control, University of Nigeria Enugu Campus,

400006, Enugu, Enugu State, Nigeria. Email: Harold.mba@unn.edu.ng

Abstract

Fuel subsidy removal has been a very topical and delicate issue in Nigeria. In spite of government

assurance that the proceeds from the fuel subsidy withdrawalwill be used judiciously and effectively

to provide critical infrastructure that will cushion its effects, the opponents have remained resolute

on their uncompromising stand against its removal.The goal of this study is to determine the actual

size of fuel subsidy in Nigeria. It is therefore hypothesised that there was no significant relationship

between price of fuel and fuel subsidy.Simple linear regression technique was used in the analysis.

The results suggest that there was a significant relationship between the price of fuel and subsidy at

less than 0.01 significant level(R2=0.79). This implies that fuel subsidy accounted for 79 per cent of

the actual price of fuel. This is an indication that governmentactually subsidised fuel by 79 per cent

of the actual price per litre. In others word,the consumers only paid for 21 per cent of the actual price

per litre. This is evidence that fuel is highly subsidised in Nigeria.The study recommends gradual

removal of subsidy, and using the money realised from it for cushioning the effects on the poor.

1. Introduction

Fuel subsidy reform has been a topical issue in Nigeria. Several attempts made by the

country’s Federal Government to remove fuel subsidy were met with stiff opposition by

various interest groups. These groups include the Nigerian labour unions, National Asso-

ciation of Nigerian Students, civil societies and a significant percentage of the Nigerian

public. The opponents of the fuel subsidy withdrawal strongly believe that subsidy is non-

existent. They argue that the price of fuel adequately covers the production cost of crude

oil in the country and maintain that the claim by the government on the existence of fuel

subsidy is a ploy to reviewupward the prices of fuel products in favour of a few oil market-

ers. This is especiallythe situation now that over 64 per cent of domestic fuel consumption

in Nigeria is imported. They also point out that at the current pump price of $0.42 per litre,

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