Theophilus Opaleye: Nigeria’s Fuel Subsidy Regime And The Empowerment Of Corruption

When in January 2012 millions of Nigerians trooped out to protest against the removal of fuel subsidy by the Goodluck Jonathan administration, the conversation – as it often is in Africa’s most populous nation – was overshadowed by the prevalent politics of that time. With that, an opportunity was lost for a robust economic debate about one of the cornerstones of underdevelopment in the country – subsidies, and corruption.

After the dust settled on the historic #OccupyNigeria protests came revelations of a fuel subsidy scam so elaborate in conception and brazen in execution the impact on Nigeria’s economy is still being felt today. As investigations later revealed, the federal government had in 2011 spent (or claimed to have spent) N2.587 trillion as fuel subsidy payments to fuel importers even though only N245 billion was budgeted for that purpose.

How did Africa’s largest oil producer arrive at spending more than half of its national budget on fuel subsidy payments? Due to the lack of infrastructural capacity to refine crude oil locally to meet consumption demands, government, through the Petroleum Products Pricing and Regulatory Agency (PPPRA), licensed fuel importers to bring in refined products through the Nigeria National Petroleum Corporation (NNPC). In 2006, Nigeria had 6 of these importers. That number rose from 19 in 2008 to 140 in 2011.

These importers are paid a certain amount by PPPRA as subsidy to keep the imported petroleum products at a price fixed by the government. This according to proponents of the scheme is meant to ease the cost burden on ordinary citizens who are perhaps unable to afford the market-determined price. Due to varying consumption levels and changes in costs of importation, the amount paid as subsidies each year by the government varies.

In 2006, the total amount paid by PPPRA as subsidy was about N272 billion. the Nigerian National Petroleum Corporation (NNPC) got N243 billion out of that amount and the rest went to the independent marketers. The 2009 to 2011 period when the number of licensed fuel importers rose to 140 coincided with the rise of subsidy payments to over N2 trillion. Nigerians were to find out later that most of these “licensed fuel importers” only existed on paper and that they collected humongous sums as subsidy payments fuel that never existed.

Many of those indicted in the scam turned out to be families and relatives of the rich and powerful occupants of the nation’s political class. Bar a few convictions, most of the cases are still dragging in various courts across the country. A few hundred billion Naira has been recovered in cash and property forfeitures, aided by the recent whistleblowing policy. But the bulk of the amount cornered in what is arguably the biggest case of corruption and financial crime in Nigeria’s history remains at large, and the perpetuators walking free.

The corruption engendered by the fuel subsidy regime extended beyond the audacious theft and procurement fraud perpetuated by fuel importers and marketers in collusion with government officials. In some cases, the products are hoarded by the marketers to create artificial scarcity in order to drive prices higher than the government approved threshold. This created untold hardship on Nigerians who often had to queue for endless hours to buy fuel at exorbitant prices, defeating the entire purpose of the subsidies. The marketers are also known to often divert petroleum products on which the Nigerian government has paid subsidies to neighbouring countries where they are sold for higher amounts.

It was an intricate scam that should never have been. That scam was borne out of government’s inability and unwillingness to innovate and provide an enabling environment for market-oriented policies in production and importation of petroleum products. Subsidy for the Nigerian government was an avenue of getting praise for taking an easy way out of a difficult situation that should never have been. That scam cost Nigeria and Nigerians trillions that could have been invested in education, infrastructure, health, power and social welfare.

According to Nigeria’s current petroleum minister, between 2011 and 2015 petrol and kerosene subsidies cost Nigeria an estimated $65 billion. This amount is higher than the GDP of Kenya. Between 2006 and 2015 economic analysts estimate that fuel subsidies could have gulped as much as N10 trillion. The current administration has since removed fuel subsidies, removing a N15.4 billion monthly burden from the federal government as revealed by the vice president.

The lessons, however, are not to be missed. The need for diligent prosecution of those indicted in the scam cannot be overstated. In April, an oil marketer Jubril Rowaye, Chairman of Brilla Energy Limited, was sentenced to 104 years imprisonment over N1.05billion subsidy fraud charge preferred against him by the Economic and Financial Crimes Commission. Earlier in January, Mrs. Ada Ugo-Nnadi, Managing Director of Ontario Oil and Gas Limited, was sentenced to 10 years in jail for her role in a N754 million fuel subsidy scam.

More convictions and sentencing in the rest of the ongoing fuel subsidy scam cases will serve as a deterrent against corruption for government officials and corporate entities in their dealings with the government. This should also strengthen government’s resolve in sustaining reforms in the petroleum sector to entrench a culture of accountability and transparency.

Theophilus Opaleye is a public finance analyst based in Lagos. This article is syndicated via