Fuel subsidy is a mirage, cut pump price — Agbon

Professor of Petroleum Engineering, Izielen Agbon, has described fuel subsidy as a “mirage” and called for policies that would significantly reduce the pump price of Premium Motor Spirit, PMS, through lower domestic production and refining costs.

Agbon, a United States-based petroleum expert, spoke on Saturday at an online public discussion organised by the Alliance on Surviving COVID-19 and Beyond, ASCAB, on the topic, “Working Class Solutions to PMS Price Increases and Fuel Subsidy Removal.”

He argued that the debate over fuel subsidy had obscured what he described as the real issue — the cost of petroleum products to consumers.

According to him, there are two major methods of costing petroleum products: Production Cost Pricing, PCP, and Import Parity Pricing, IPP.

He explained that PCP was based on the cost of producing crude oil, refining it and distributing the finished product within the domestic market.

“In this pricing method, the PMS pump price is the cost of crude oil at the refinery gate, the refining cost, the distribution and marketing cost and the taxes,” he said.

Agbon claimed that the cost of producing a barrel of crude oil in Nigeria ranged between $31 and $48, compared with a global average of about $12, attributing the difference to ageing infrastructure, insecurity, sabotage, oil theft and the high cost of imported oilfield inputs.

He argued that even at an exchange rate of N1,333 to the dollar, PMS should cost between N435 and N687 per litre under the production-cost model.

The professor said the alternative Import Parity Pricing model assumed that crude oil was produced and refined abroad before petroleum products were imported into Nigeria.

He argued that the import-parity model had resulted in higher domestic petrol prices and alleged that the pricing system used by the Dangote Petroleum Refinery also reflected import-parity considerations.

Agbon further claimed that there had been instances where imported petrol sold at lower prices than the refinery’s ex-depot price.

He cited March 23, 2026, when he said the refinery’s ex-depot petrol price was N1,275 per litre, compared with an estimated import-parity spot price of N1,122 per litre.

He also alleged that some Nigerian fuel importers bought petrol refined by the Dangote refinery through international traders and reimported it into Nigeria at prices lower than the refinery’s domestic ex-gantry price.

According to him, between March and May 2026, an estimated 70 to 80 per cent of Nigeria’s seaborne PMS imports originated from the Dangote refinery but were routed through the Lomé offshore trading hub.

He said the development demonstrated the complexity of Nigeria’s petroleum pricing system and reinforced his argument for a domestic production-cost model.

Agbon also challenged the historical justification for fuel subsidy, alleging that the subsidy regime had been associated with corruption and weak accountability.

Recalling the 2012 fuel subsidy controversy, he said the removal of subsidy by the administration of former President Goodluck Jonathan, which increased the petrol price from N65 to N145 per litre, triggered nationwide protests and a subsequent House of Representatives investigation.

He said the investigation identified alleged irregularities in fuel importation and subsidy payments and recommended the recovery of billions of dollars in funds it found to have been improperly claimed.

Agbon also questioned the assertion that fuel subsidy had completely disappeared following the May 2023 policy announcement by President Bola Tinubu.

He claimed that NNPCL records showed PMS consumption of 10.165 billion litres between June and December 2023, alongside an alleged N3.6 trillion subsidy claim, while consumption in 2024 stood at 18.816 billion litres with an alleged N8.67 trillion paid as subsidy or under-recovery.

He argued that the distinction between subsidy and other forms of petroleum-sector support should be examined transparently.

On the impact of petrol prices on ordinary Nigerians, Agbon said increases in PMS prices had wider consequences because of the country’s dependence on road transportation.

He argued that higher transport costs feed into the prices of food, healthcare, education, rent and other services, while small businesses that depend on petrol-powered generators also face increased operating costs.

“The poor will benefit when the fuel price is low and only suffer when the fuel price is high,” he said.

Agbon also argued that the impact of market forces on petrol prices was uneven, saying prices tended to rise rapidly when international costs increased but often declined more slowly when those costs fell.

He called for the rehabilitation of Nigeria’s refineries and the construction of additional refining capacity, arguing that the Nigerian National Petroleum Company Limited, NNPCL, needed functional refineries to fulfil its role as supplier of last resort.

The petroleum expert also advocated investment in mass urban transit and nationwide rail transportation to reduce Nigeria’s dependence on road transport and lower the impact of fuel prices on households and businesses.

He called for greater use of renewable energy, particularly solar power, in homes and commercial buildings, while urging industries to rely more on electricity generated from gas-fired power plants.

Agbon further advocated a living wage, citing the rising cost of petrol as evidence of the pressure facing workers.

According to him, a 50-litre tank of petrol costs between N63,250 and N70,000 at prevailing prices, which he said was roughly equivalent to the current N70,000 minimum wage.

He said the priority for Nigerians ahead of the 2027 general elections should include candidates with policies capable of reducing energy costs, improving wages and strengthening national security.

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