Fuel subsidy proposal may scare investors, IMPI warns

Nigeria's Independent Media and Policy Initiative (IMPI) has cautioned against the potential return of fuel subsidies, warning that such a move could scare away foreign investors and undermine regulatory confidence. The group specifically addressed former Vice President Atiku Abubakar's proposal to restore subsidies, arguing it sends a negative signal after years of pursuing deregulation in the downstream oil sector.

IMPI's Chairman, Omoniyi Akinsiju, stated that Abubakar's plan involves a shift from consumption to production subsidies, where local refineries would receive crude at discounted prices to offer lower prices to consumers. However, IMPI contends this model could introduce uncertainty for investors if commercial operators are forced to adhere to politically determined prices. Akinsiju described the arrangement as convoluted, potentially compelling refineries, including the Nigerian National Petroleum Company Limited and private entities, to operate within politically mandated pricing formulas.

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Atiku’s proposal also sends signals to global markets that Nigeria lacks regulatory predictability. This policy shift would scare away international capital and freeze modern Public-Private Partnerships, with repercussions for funding critical legacy infrastructure projects and a damning effect on production and productivity.

"Atiku’s proposal also sends signals to global markets that Nigeria lacks regulatory predictability. This policy shift would scare away international capital and freeze modern Public-Private Partnerships, with repercussions for funding critical legacy infrastructure projects and a damning effect on production and productivity," Akinsiju said. The think-tank further argued that re-regulating petrol prices would contradict the Petroleum Industry Act 2021, which established a framework for a commercially driven downstream sector. IMPI believes the proposed intervention might create an "illusion of price reduction" while shifting the subsidy cost to discounted crude allocations, potentially impacting fuel distribution to remote areas as supplies favor high-volume urban markets.

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Atiku’s proposal to re-regulate prices not only directly undermines the Petroleum Industry Act 2021, but also creates an illusion of price reduction. Fixed price caps remove commercial incentives for marketers to distribute fuel to remote areas; consequently, fuel supplies would shift to high-volume urban markets like Lagos, Abuja, Kano, and Port Harcourt.