Nigeria’s fuel subsidy cost to rise as smuggling resumes

Nigeria will likely pay higher fuel subsidy costs in the coming months as traders have resumed smuggling fuel to Cameroon, where retail prices are currently higher.

The government projects to spend N5.4 trillion on fuel subsidy this year, but with subsidised petrol is sold across the border, that cost is likely to rise.

The Nigeria Customs Service confirmed on Monday that it seized petroleum tankers in Adamawa state involved in fuel smuggling — prompting protests by petroleum marketers.

Earlier this month, the comptroller-general of Customs, Bashir Adeniyi, said Customs intercepted 150,950 litres of smuggled petrol at border states of Adamawa, Sokoto and Cross River within two weeks.

Huge Bill

The development comes a year after the Nigerian government ended fuel subsidy payments, citing their high expense.

For years, Nigerian governments have blamed fuel smuggling to neighbouring Cameroon, Niger, and Benin, where fuel prices are higher, for the huge subsidy costs they covered each year.

The decision to scrap the payments, backed by the International Monetary Fund and flaunted by the federal government, increased petrol prices by more than threefold to as high as N700, initially curbing cross-border smuggling.

But the government’s follow-up decision to ease control on the naira, leading to two devaluations, drove up the cost of importing petroleum products and their retail prices. The government capped the pump price in June 2023 despite global market price fluctuations, effectively reintroducing subsidy payments.

After months of denial, the government recently admitted to spending significant sums on petrol subsidies. Finance Minister Wale Edun said the government spent N3.6 trillion in 2023 and projected N5.4 trillion for 2024. Following backlash, Mr. Edun attempted to walk back on the disclosure.

Perfect Conditions for Smuggling

While the Nigerian government has been unable to further increase fuel prices, Cameroon raised fuel prices in February citing budget constraints, creating favourable conditions for smuggling to resume.

The Nigeria Customs said it seized tanker trucks used for smuggling under its “Operation Whirlwind”. Mangsi Lazarus, the Customs spokesperson for Adamawa and Taraba, told Reuters the service had confiscated tanker trucks used to smuggle petrol.

In response, petroleum marketers shut down nearly 1,800 petrol outlets, forcing motorists to buy from the black market.

Dahiru Buba, chairman of the Independent Petroleum Marketers Association of Nigeria (IPMAN) for Adamawa and Taraba states, said Customs initially impounded some tanker trucks belonging to IPMAN members and released them after the association protested. However, more trucks were seized, and several fuel stations were shut down, prompting operators to close outlets in protest.

“We wrote to them (Nigeria Customs) again, but there were no responses, which is why we decided to go on strike,” Mr. Buba told Reuters. “This is our business, and we cannot be quiet when our members are treated this way.”