Kerosene Subsidy and Oil Deregulation Policy Development in Nigeria

Abstract

The government in Nigeria posits to deregulate the downstream sector of the petroleum industry with the intention to reduce or eliminate subsidies and also be able to stimulate private investment in the refining sub-sector. A number of contending issues, such as the opposition of organized labour and those of other social/public policy organizations, need to be examined. The argument of these organized bodies is that deregulation will lead to increase in fuel pump prices and will have grave socio-economic repercussions, such as increase in price of goods and services in the country, foster massive unemployment, promote poverty, stunt national economic development, and still not lead to any significant growth and development in the economy, particularly in the domestic refining sub-sector. This study presents strategic considerations for the oil deregulation debate based on the price–demand elasticity analyses of petroleum products (petrol, diesel, and kerosene). The article also shows that reductions in fuel subsidies in the past—which usually translates to increase in fuel prices—have actually been met with increase in the demand trend for petrol and diesel and decrease in the demand trend for kerosene. This decrease in kerosene demand trend would have significant implications for the environment as the rural dwellers and urban poor would have to meet up their energy needs one way or the other. Studies have shown that these vulnerable groups readily turn to using firewood from various sources, particularly the forests, as fuel replacement for their domestic energy needs. This analysis supports the argument for deregulation of the petrol and diesel markets as price increases here do not foster demand collapse; however, the argument for the kerosene market would be to sustain and even increase subsidies for socio-economic and environmental reasons.