Nigeria’s downstream petroleum industry is in turmoil as signs emerge that the Federal Government may no longer be able to sustain the cost of under-recovery, commonly known as subsidy, due to the rising costs of petrol imports.

Industry insiders revealed that an official increase in pump prices is likely imminent, as the government, through the Nigerian National Petroleum Company Limited (NNPCL), needs to raise enough revenue to pay off its outstanding debts to international suppliers who have been providing fuel on credit. There is speculation that the pump price could soon reach N1,000 per litre or more, although some sources estimate the landing cost of petrol at approximately N1,200 per litre, excluding delivery costs to fuel stations.

Currently, NNPCL is struggling to secure adequate supplies to meet the country’s fuel demands, leading to severe shortages over the past week. This scarcity has significantly impacted the transportation sector and the general public. The supply shortfall is attributed to some suppliers' reluctance to continue providing fuel on credit and the increased smuggling of products out of the country.

Recent transactional analysis shows that the landing cost of petrol, including the product cost, financing, freight, port charges, insurance, storage, and fees from the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), stands at N1,205.52 per litre. When transportation costs, marketers’ margins, and other dues are factored in, the estimated official pump price rises to N1,405 per litre.

This suggests that even at a proposed price of N1,000 per litre, the government would still be covering a substantial portion of the costs, placing it in a difficult position. The government now faces the challenge of deciding whether to fully eliminate the subsidy, achieving complete cost recovery, or opt for a compromise by splitting the cost between the government and consumers, resulting in a pump price of N1,000 per litre.