Nigerian gasoline subsidies set to soar by 70% in 2023 - govt

Quantum Commodity Intelligence - Maintaining gasoline subsidies at current levels will cost Nigeria more than $16 billion (NGN 6.72 trillion) in 2023, an increase of 70% from this year, according to a government report published late last week.

The government disclosed the figure in its draft fiscal strategy paper for 2023 through 2025, presented by the Minister of Finance, Budget & National Planning, Zainab Ahmed.

Nigeria imported 12.3 million metric tons of gasoline in the first seven months of this year, according to government figures, while the cost of subsidies have increased almost 900% since 2017.  

Nigerian gasoline, which is marketed as premium motor spirit, retails for just over $0.40/litre, whereas spot prices in ARA reached more than $1,500/mt in June, the equivalent of around $1.10/litre, according to Quantum data.

However, global gasoline prices have been in a sharp downtrend this month, tumbling to a four-month low of $1,032 FOB ARA on Friday, or under $0.80/litre equivalent.

Nigeria is highly dependent on gasoline imports, with its current refining capacity largely idled after years of underinvestment and neglect.

The much-delayed Dangote refinery is scheduled to start operating in the fourth of this year, although a source told Quantum that the the project was 'very unlikely' to meet the new deadline, with operations not expected to commence before 2023.

The Dangote Petroleum Refinery will be Africa's largest with a nameplate capacity of 650,000 bpd and has been described as a gamechanger for Nigeria, which is largely reliant on imports of refined products.

In the report, Nigeria's government presented two scenarios, one involving the continuation of petrol subsidy payment and another assuming partial payment until the subsidy is phased out in 2023.

"Scenario 1 – the Business-as-Usual scenario: This assumes that the subsidy on PMS, estimated at N6.72 trillion for the full year 2023, will remain and be fully provided for," the document says.

"Scenario 2 – the Reform scenario: This assumes that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced in early 2021, in which case only N3.36 trillion will be provided for."