Fuel subsidy: Despite N7trn windfall, State Governors fail to ease economic burden

Two years after President Bola Tinubu announced the end of fuel subsidies in May 2023, the Federal Government has reportedly saved over N7 trillion, a sum disbursed to state governments.

However, poor management of these funds has worsened the plight of millions of vulnerable Nigerians.

Rather than translating into improved social welfare or economic relief, the misappropriation of the savings has seen small businesses struggle amid rising operating costs, erratic electricity supply, and unstable policies.

Many entrepreneurs have been forced to downsize or shut down, deepening Nigeria’s unemployment crisis.

Stakeholders are raising alarm over how escalating transport and production costs are fuelling inflation, with state governments’ interventions falling short of addressing the economic fallout.

It is also worthy of note that while government revenues surged with 2024 Federation Account Allocation Committee (FAAC) disbursements rising to N15.26 trillion from N10.14 trillion in 2023 and N8.21 trillion in 2022, interventions like compressed natural gas (CNG) buses and conditional cash transfers have been poorly executed.

As earlier highlighted by this newspaper, some Nigerian states governors receive higher allocations from the FAAC but struggle to translate these increases into meaningful development for their citizens. This is due to various factors, including inefficient revenue management, inadequate internal revenue generation, and a heavy reliance on FAAC allocations.

Analysts called for reforms in state revenue management, including digitizing revenue collection, strengthening tax intelligence, and enforcing compliance, to improve the financial independence of states and ensure that FAAC allocations are used effectively.

In its May 2025 Nigeria Development Update, the World Bank noted that the rebasing has complicated the interpretation of inflation trends. Despite the reported easing, the Bank warned that price pressures remain elevated. “Re-anchoring inflation expectations will require sustained monetary policy efforts,” it stated.

Minister of Humanitarian Affairs and Poverty Reduction, Prof. Nentawe Yilwatda, had said six million Nigerians received conditional cash transfers from an $800 million World Bank loan meant to cushion subsidy impacts, but many stakeholders argue the impact remains invisible.

Chairman of the Board of Trustees, Community Development Committees of Niger Delta Oil and Gas Producing Areas (CDC), Joseph Ambakederimo, noted that while federal, state, and local revenues have risen due to savings in fuel subsidy, many ordinary citizens remain excluded from the benefits.

He criticised state governments for failing to invest in agriculture, infrastructure, and local economies, calling on them to make better use of the “humongous” funds they now receive.

Hunger, unemployment, poor health, bad education and poor infrastructure continues to deterriorate livelihood in many states of the federation as well as a shooting oil price.

As despite spending $2.9 billion on refinery repairs, the Nigerian National Petroleum Company Limited (NNPC) has failed to revive state-owned refineries, leaving the country dependent on imports for over 60 per cent of its daily 50 million-litre petrol consumption.

Energy Economist, Ademola Adigun, told this newspaper that Nigeria’s petroleum sector is not fully deregulated despite subsidy removal.

He explained that subsidies have merely been reduced, not eliminated, and the market still lacks genuine competition.

Adigun criticised preferential practices like selling crude in naira to select buyers, thereby creating a “monopoly play” that squeezes out independent marketers, reportedly forcing about 5,000 filling stations to close.

Adigun acknowledged rising investor interest in gas and praised fiscal reforms, but warned that Nigeria’s market structure is still too weak to attract large-scale investment.

He called for a focus on alternative transport systems to reduce costs, noting that rising transport expenses are a key driver of food and commodity inflation.

An Economist and the Chief Executive Officer of the Centre for Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, stressed the urgent need to address energy costs, which he described as “crippling”.

He advocated a lower interest rate environment to ease access to financing for producers and service providers such as those in the telecoms industry. According to him, despite marginal declines in fuel prices, transportation costs, a major component of inflation, remain stubbornly high. Logistics expenses are routinely passed on to consumers, inflating retail prices across sectors.

Renowned energy scholar, Prof. Wunmi Iledare, said that since the fuel subsidy removal, the government has saved over N7 trillion, redirecting funds to infrastructure, healthcare, education, and social welfare.

He noted that the move has improved Nigeria’s fiscal outlook, reduced borrowing, and boosted investor confidence while also opening competition in the downstream petroleum sector and ending NNPCL’s import monopoly.

Decrying its socio-economic toll, Iledare noted fuel prices have tripled, pushing up transport and food costs and deepening poverty.

Iledare noted that government palliatives like cash transfers and transport subsidies have been inconsistent and poorly implemented, damaging public trust.

Iledare emphasised that subsidy removal must go together with inclusive reforms, including stronger investments in public transport, healthcare, and local refining capacity, or risk undermining the legitimacy of the policy. “The hard work of building an inclusive and productive economy is just beginning,” he warned.

Meanwhile, the NMDPRA has begun paying the N100 billion bridging claims owed to independent petroleum marketers.

President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Abubakar Shettima, confirmed that while payments are slow, they are a welcome relief for marketers who now source about 80 per cent of their products from Dangote, with the remainder from private depots and NNPC.

Shettima expressed hope that the full outstanding payments will soon be settled, emphasising that the funds are essential for the continued operations of independent marketers.

Despite government claims that over 100,000 motorists have converted to CNG, users complain of poor infrastructure, with demand for CNG far exceeding supply.
Nigeria has only 56 CNG stations, mostly in four states, compared to around 150,000 petrol stations nationwide.

Managing Director of Lanre Shittu Motors, Taiwo Shittu, stressed the need for more CNG infrastructure, especially in Nigeria’s underserved northern regions.
He noted that CNG can dramatically cut transport costs, reducing a N600,000 diesel trip to N72,000, but expansion is constrained by inadequate refuelling stations and conversion kits.

Similarly, Managing Director of Nord Motors, Tobi Ajayi, called for stable regulations, better tariffs, and government-backed credit systems to support CNG vehicle uptake.

He warned that despite an executive order requiring Ministries, Departments, and Agencies (MDAs) to buy local CNG vehicles, companies still face difficulties securing sales.

Ajayi urged the government to enforce local assembly policies, invest in CNG infrastructure, and raise public awareness of CNG’s cost and environmental benefits.

On the ground, drivers like Charles Okadigbo lamented frequent CNG shortages, saying they often wake at 4 AM to search multiple stations without success, eventually resorting to petrol.

A commercial driver at Abuja’s Area One Motor Park Ibrahim Officer added that most intra-city vehicles, especially Volkswagen Golfs, lack appropriate kits for CNG conversion, and many drivers are willing but unable to switch due to cost constraints.

While the government’s Presidential CNG Initiative (PCNGI), in partnership with the Nigerian Union of Road Transport Workers (NURTW), promised a 40 per cent transport fare reduction, implementation has faltered due to unreliable CNG supply and the slow pace of vehicle conversions.