After President Muhammad Buhari came into power in 2015, it was more of a general consensus that government should stop paying fuel subsidy.

Oil marketers had abused the scheme, using it to enrich themselves at the expense of tax payers.

More so at the time, oil price was at an all time low of about $30 per barrel and with little hope of recovery.

So, it made some economic sense to axe fuel subsidy since prices would be relatively low given the condition of the global oil market at the time.

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That was in 2016, the government pulled the plug on fuel subsidy, necessitating the increase in the pump price of petrol from 87-naira to 145-naira.

Initially, a price range of between 143-naira and 145-naira was allowed, but marketers quickly settled for the upper limit of 145-naira.

Fast forward to December 2017 when Nigerians suddenly became unable to find any fuel to buy, the government came out to announce that it had been paying subsidy on petrol all along.

The Group Managing Director of Nigerian National Petroleum Corporation, NNPC Maikanti Baru was the one who disclosed this, saying that the corporation – which had become the sole supplier of petrol into the country – had been paying extra 26-naira on each litre of the product.

That admission made it official that petrol subsidy was back in Nigeria’s energy lexicon.

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Baru said that the landing cost of petrol in the country is 171 naira per litre and with a pump price at 145 naira, that automatically leaves a gap of 26-naira which NNPC had been paying.

But the federal government has since removed subsidy payment from the budget and even in the 2018 budget, no such provision has been made.

So, what has happened is that “NNPC has been paying the subsidy from their operations. Any money it makes, they remove the one for subsidy. They have been the one importing fuel all along, so they have been the one taking money from its books to pay for the extra cost of importing petroleum products – reason why they have been declaring losses,” said Michael Eboh, an Abuja based Energy analyst.

According to Eboh, the return of subsidy was a function of the exchange rate and the price of crude oil in the international market.

He said: “At the time that the pump price of petrol was adjusted from 87-naira per litre to 145-naira per litre, the naira was exchanging about 197-naira and the price of crude in the market was about $30.

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“Now crude oil price is about $65 and the naira exchanges for between 306 and 365-naira per dollar. The price of naira has almost doubled as it depreciated. The price of crude has also risen.

“The implication is that NNPC would have adjusted the pump price to reflect the new market reality but that would have raised the pump price of petrol and, so it decided to pay the balance cost of the product to keep the price at 145-naira.”

He therefore explained that unless Nigeria sorts out the challenge around the local refineries, subsidy payment will always be there.

He also noted that the two things that can help eliminate or minimize the amount paid as subsidy is drop in price of crude oil or the strengthening of the naira.

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