The recent surge in petrol prices in Benin, Togo, and other countries neighboring Nigeria, following the elimination of fuel subsidy by the Nigerian government, indicates that these countries have been benefiting from the smuggling of petroleum products, according to a report by global accounting services company KPMG.
KPMG Nigeria’s report, titled “Removing Fuel Subsidies in Nigeria,” highlights that the removal of fuel subsidy by President Bola Tinubu has resulted in a significant increase in the price of petrol in Benin Republic.
The cost of fuel has risen to 800 CFA, nearly double the previous price of 450 CFA, as stated by the financial consulting firm.
The report suggests that this increase signifies the smuggling of fuel from Nigeria to neighboring countries due to Nigeria’s inability to track the consumption of subsidized petrol by its own consumers.
Checks by News About Nigeria reveal that Nigeria spends approximately N400 billion monthly and N4.8 trillion annually on fuel subsidies, a practice that has been deemed unsustainable.
President Bola Tinubu announced during his inauguration on May 29 that the Federal Government would no longer bear the burden of subsidizing Premium Motor Spirit (PMS).
Consequently, the Nigerian National Petroleum Corporation (NNPC) adjusted petrol prices upwards in various regions of the country. For instance, in Abuja and other North-Central States like Nasarawa, Plateau, Kwara, Kogi, Benue, and Niger, the price increased from between N189 to N194 to N537 per liter.
In Lagos and other South-West States such as Oyo, Ogun, Ekiti, Ondo, and Osun, the price rose from between N184 and N189 per liter to between N488 and N500 per liter.
In the South-East, encompassing states like Abia, Imo, Anambra, Enugu, and Ebonyi, the price was hiked from between N184 and N189 per liter to N515 to N520.
KPMG’s report confirms that Benin Republic has also been impacted by the subsidy removal decision. The report highlights the belief that a significant amount of subsidized PMS has been smuggled out of Nigeria into neighboring countries.
The pump prices in the Republic of Benin almost doubled from 450 CFA to 800 CFA, reinforcing this widespread belief.
The report further explains that the price of petrol in Nigeria is lower than in neighboring countries due to the subsidy, creating an opportunity for traders to purchase petrol in Nigeria and sell it in those countries at higher prices.
This leads to the diversion of subsidized petrol to neighboring countries, where it is sold at market prices, while Nigerians face fuel scarcity and long queues at petrol stations. The price of PMS in Chad, Niger, Benin, and Cameroon, for example, is N333, N365, N381, and N399, respectively, compared to Nigeria’s estimated pump price of NGN 189 per liter.
There have been speculations that fuel is smuggled to neighboring countries, with Mele Kyari, the Group Chief Executive Officer of NNPC, stating that four trucks carrying 60,000 liters of fuel cost between N12 million to N17 million when smuggled out of Nigeria for sale at the border, but only N300,000 when transported from Maiduguri to Lagos.
KPMG emphasizes that the PMS fuel subsidy primarily benefits wealthier Nigerians and those involved in corrupt practices such as round-tripping, where more refined PMS is imported than delivered to Nigerian consumers, and the remaining supplies are smuggled to neighboring markets for higher prices.
The removal of subsidies on PMS in Nigeria is seen as a complex issue that necessitates careful consideration of its potential economic, social, and political impacts, according to KPMG.
While subsidies have provided certain benefits, they have also drained the country’s resources and contributed to inefficiencies and corruption.
KPMG suggests that the success of PMS fuel subsidy removal requires political will and commitment from the Federal Government, accompanied by robust coordination with the states.
Fiscal authorities and the Central Bank of Nigeria (CBN) need to coordinate the monetary aspects of deregulation and subsidy removal.
Without foreign exchange reforms and the elimination of the gap between the official and parallel exchange rates, the reforms may not be effective.
To minimize the negative impacts of subsidy removal, KPMG recommends a set of coordinated actions that take into account the inflationary impact, potential social unrest, and the need for compensating measures to support the poor.
