In an newsletter published by Outlook Planet and updated in November 2024, India has since 2010 had a “fossil fuel subsidy policy” which has undergone several reforms since then.

However, in Nigeria, subsidy was removed through the president’s inaugural speech where he announced that “Subsidy is Gone!”.

This announcement since May 2023 has led to a surge in the price of petrol nationwide, increase in the cost of goods and services as well as other ripple effect on the economy being a resource dependent economy, without clear policy frameworks to mitigate the impact.

In contrast, India’s gradual and research-driven approach to subsidy removal offers lessons in strategic planning and implementation that can be beneficial to consider.

The Background of Fuel Subsidies in Nigeria

A simplified definition of fuel subsidy is the portion of the total fuel price paid for by the government on behalf of its citizens.

According to Zinami (2024), Fuel subsidies in Nigeria date back to the 1970s when they were introduced to reduce the burden of fuel costs on citizens.

They became institutionalized in 1977 under the Price Control Act promulgated by the military regime of Olusegun Obasanjo, which regulated prices of essential items, including fuel. Over the decades, subsidies grew to cover a significant portion of government expenditures.

By 2013, Nigeria was listed among the top 20 countries subsidizing fuel consumption, according to the International Energy Agency (IEA) as cited in Soile & MU, 2015.

Despite being one of Africa’s leading oil producers, Nigeria’s inability to maintain functional refineries forced it to rely heavily on imported refined petroleum products.

This paradox has made subsidies unsustainable, leading to mounting fiscal pressures and limited development benefits.

In May 2023, President Bola Tinubu inaugural speech led to the abrupt removal of fuel subsidy triggered an immediate spike in petrol prices and a ripple effect on goods and services, reflecting Nigeria’s heavy reliance on petroleum for economic activity.

A public announcement during an inaugural speech alone does not constitute a comprehensive fuel subsidy reform. India has faced challenges in the petroleum sector similar to those in Nigeria.

According to the U.S. Energy Information Administration (“EIA”) 2022, India was the world’s third-largest energy consumer, following China and the United States, as of 2021.

The increasing demand for petroleum products, driven by economic growth, has been compounded by limited domestic production capacity, necessitating fuel imports. Like Nigeria, India has historically seen substantial government involvement in its petroleum sector.

In Nigeria, the most notable reform following the removal of the fuel subsidy is the reallocation of funds previously used for subsidies to sectors such as public infrastructure, education, healthcare, and job creation—areas intended to improve the lives of millions.

It will interesting to note that prior to President Tinubu’s inauguration, the Nigerian government spent approximately ₦400 billion (around $500 million) per month on subsidizing petroleum imports, as noted by Mele Kyari, the CEO of the Nigerian National Petroleum Company Limited (NNPCL), which is authorized to operate in Nigeria’s oil sector.

While redirecting these funds could theoretically represent a significant reform, its effectiveness remains uncertain if the impacts are not clear, neither do they directly improve the standard of living or the cost of living of Nigerians who have to bear the brunt of subsidy removal.

For example, the 2024 budget allocated ₦1.54 trillion to the education sector, representing only 6.39% of the total budget.

There was no notable increase in the education budget when compared with previous years that shows the rechannelling of fuel subsidy funds.

This limited visible improvement suggests a lack of proper planning and insufficient research into the specific needs of the Nigerians.

However, unlike Nigeria, India’s fuel subsidy reforms were guided by a thorough assessment of cost-benefit analyses and economic impacts, resulting in more effective outcomes for its economy. In India, fuel subsidy reforms were shaped by the work of government-appointed committees conducting extensive research and analysis.

Through these reform initiatives, India significantly reduced its fuel subsidy burden from $24.6 billion in 2013 to just $1.16 billion in 2017—a remarkable 95.28% decrease.

This was achieved by deregulating the prices of LPG, DPK, and AGO, illustrating the importance of systematic and research-driven reform strategies.

India’s Fuel Subsidy Reforms: A Gradual and Comprehensive Approach

India has pursued fuel subsidy reforms through a gradual, well-planned, and research-driven process since 2010.

Ranking as the third-largest energy consumer in the world after China and the United States, India faced challenges like Nigeria, such as growing demand for petroleum products, heavy government involvement in the energy sector, and limited domestic production capacity necessitating fuel imports.

To address these challenges, India formed multiple expert committees to guide subsidy reform policies:

1. Rangarajan Committee Report (2006) – Recommended the use of global market prices to determine the market price for petrol and diesel in the country while limiting subsidized kerosene to families below-poverty-line (“BPL”) and increasing retail prices for LPG.

2. Parikh Committee Report (2010): Advocated for complete liberalization of petrol and diesel prices at both the refinery and retail levels, targeting subsidized public distribution system (“PDS”) kerosene for households below-poverty-line with annual price increases tied to agricultural Gross Domestic Product (“GDP”) growth, kerosene sold outside the subsidized public distribution system was set close to the price of diesel, annual quantity limit of six 14.2 kg cylinders on subsidized LPG for each household, and using direct cash transfers or quantity rationing for subsidized LPG.

3. Nilekani Task Force Interim Report (2011) – Recommended replacing in-kind fuel and fertilizer subsidies with direct cash transfers using the Unique identification (“UID”) system to reduce fiscal costs by eliminating duplication and ghost beneficiaries.

4. Kelkar Committee Report (2012) – Outlined a fiscal consolidation plan involving phased elimination of diesel subsidies over two years, full deregulation by 2014, gradual removal of LPG subsidies over three years, and a one-third reduction in politically sensitive kerosene subsidies within the same timeframe.

These reforms significantly reduced India’s fuel subsidy burden from $24.6 billion in 2013 to just $1.16 billion by 2017—a decrease of over 95%.

This achievement was facilitated by deregulating LPG, kerosene, and automotive gas oil prices, adopting direct cash transfers, and targeting subsidies only to vulnerable populations.

Key Lessons for Nigeria from India’s Reforms

India’s approach underscores several key elements that Nigeria could adopt to make subsidy reforms more effective:

1. Research-Based Policy Formulation: India’s reforms were guided by thorough research and committee recommendations. By contrast, Nigeria’s abrupt announcement lacked a well-defined policy framework, creating economic shockwaves without providing adequate support mechanisms for affected populations.
2. Targeted Support Measures: India implemented targeted subsidies for vulnerable populations and used direct cash transfers to eliminate waste and duplication. In Nigeria, the promise to redirect subsidy savings toward social sectors like education and healthcare has not translated into visible improvements, hence, there is need for better-targeted and transparent support mechanisms.
3. Gradual Phasing-Out: The gradual removal of subsidies in India allowed time for the economy to adjust. Nigeria’s sudden subsidy removal led to a surge in fuel prices and widespread economic distress. A phased approach, with well-planned timelines and support measures, could have mitigated the shock.
4. Public Consultation and Transparency: India’s reforms involved extensive consultations with stakeholders, enhancing public understanding and acceptance. Nigeria’s unilateral decision-making process limited public buy-in, leading to widespread dissatisfaction.

The Way Forward for Nigeria

For Nigeria, merely redirecting funds from subsidies to infrastructure, education, and healthcare is insufficient if the impact is not measurable or transformative.

Effective reform requires clear policies, transparency, and targeted initiatives to ensure that savings translate into tangible benefits. Learning from India, Nigeria should focus on:

• Enhanced transparency and accountability to track and measure the impact of redirected funds.
• Support mechanisms such as direct cash transfers or targeted subsidies to shield vulnerable populations.
• Comprehensive planning and phased implementation to minimize economic shocks.
• Stakeholder consultations to build public support and ensure policy acceptance.

Conclusion

India’s experience with fuel subsidy reforms demonstrates that effective policy changes require a structured approach involving research, planning, public consultation, and targeted social programs.

While Nigeria’s recent subsidy removal represents a necessary step toward fiscal stability, the lack of a comprehensive policy framework undermines its potential benefits.

In contrast, India’s reforms led to measurable improvements that directly impacted the country’s economy. Through extensive consultation, policy formulation, and research, the Indian government increased access to clean cooking solutions for the rural poor through subsidized LPG.

Additionally, direct cash transfers to low-income households helped mitigate the negative effects of subsidy removal, while deregulation allowed oil companies to operate more freely, boosting revenue generation.

This contrast between India’s carefully planned, research-driven reforms and Nigeria’s fewer tangible outcomes highlights the importance of adopting a more structured approach in Nigeria.

By doing so, Nigeria can achieve meaningful reforms that balance fiscal responsibility with social equity, ultimately leading to sustainable development and improved well-being for its citizens.

[Featured Image Credit]

Meet the Writer – Peace Otonihu

Peace Otonihu is a seasoned investment banking analyst at a top-tier investment bank in Africa. Her expertise lies in policy analysis, financial advisory,  project and development finance, focusing on critical sectors such as oil and gas, energy, mining, transportation, and infrastructure. She is a political scientist, policy analyst, and researcher having co-authoured a research publication in a reputable journal while also exploring medium.

She is a certified chartered accountant from the Institute of Chartered Accountants of Nigeria (ICAN), with keen interest in public policy analysis, public-private partnerships, financial advisory and developing infrastructure projects. She was also a Pioneer student of the School of Politics, Policy and Governance, an unconventional school of politics designed to produce a new generation of political leaders.

The loan was sought during the period when the Nigerian government, under President Muhammadu Buhari, was considering the removal of fuel subsidies.

Dr. Shubham Chaudhuri, the Country Director of the World Bank in Nigeria, emphasized that the funds are in the form of a loan, not a grant as previously speculated.

The loan is intended to alleviate the hardships faced by the poor and vulnerable resulting from the removal of the fuel subsidy.

The disbursement of the loan was delayed as President Buhari postponed the removal of the subsidy until his final days in office. Shortly before his handover, Buhari submitted a letter to the Senate, seeking approval for the $800 million loan from the World Bank to mitigate the effects of subsidy removal.

Former Minister of Finance, Budget, and National Planning, Zainab Ahmed, stated that the loan would be disbursed in anticipation of the planned subsidy removal in June 2023.

Upon his inauguration, President Bola Tinubu eventually announced the removal of the petrol subsidy, which was followed by the Nigerian National Petroleum Company (NNPC) Limited adjusting petrol prices within 48 hours of the announcement.

Dr. Chaudhuri, the World Bank Country Director, expressed support for the Federal Government’s decision to remove the subsidy and unify the exchange rate.

He acknowledged that while the policy may cause temporary discomfort, it is crucial for rebuilding the nation’s economy.

In response to this, some Nigerians have resorted to connecting their cooking gas (liquefied petroleum gas or LPG) to power their petrol generators, as gas is comparatively cheaper in the country. 

Interestingly, this is not the first time Nigerians have been engaged in such austerity moves. There have been several cases in the past when people connected their cooking gas to a petrol generator. But the trend grew exponentially due to the advent of social media, leading to massive awareness 

While this trend reflects the resourcefulness of Nigerians in finding cost-effective energy solutions, it is important to assess its implications and potential risks.

At the moment, one of the key factors driving this trend is the decline in the price of cooking gas. In May, the price of a 12.5kg cylinder of cooking gas dropped by 30 percent due to lower crude oil prices and a decline in global gas prices. 

This decrease has provided a temporary respite to cash-strapped households who have been grappling with rising inflation and the recent hike in fuel prices. The reduced cost of cooking gas has made it an attractive alternative to petrol for powering generators.

One of the videos seen by TechEconomy shows a technician in his workshop explaining how he connected a generator that uses Premium Motor Spirit to cooking gas. He said if a 12.5kg cylinder is filled with cooking gas, it will run a generator and last for three weeks. This video has sparked reactions and even triggered Nigerians to start doing something similar. 

Growing Concerns 

However, it is crucial to highlight that connecting cooking gas directly to petrol generators is not a safe or recommended practice, according to experts. 

Cooking gas and petrol are different fuels with distinct properties and intended uses. Gas cylinders and associated equipment used for cooking are designed and regulated for specific purposes and should not be connected to petrol generators, which have different requirements and specifications. 

Attempting to modify or repurpose gas cylinders or equipment can lead to hazardous situations such as leaks, explosions, and fires.

Lagos State Issues Warning

The Lagos State Government has raised concerns about the hazards and risks involved in the conversion process of using LPG-powered generators at homes and offices. 

Director General, Lagos Safety Commission, Lanre Mojola said improper ventilation, gas leakage, spark or heat from the generator, and inadequate installation of hybrid carburetors are among the potential risks associated with this practice. 

The use of sub-standard or expired cylinders further increases the risk of gas explosions. Therefore, it is essential to prioritize safety and adhere to recommended practices when operating any form of combustible fuel.

For those seeking alternative fuel options for generators, he said it is advisable to explore appropriate alternatives specifically designed for generator use. 

Dedicated gas-powered generators or dual-fuel generators that can run on both petrol and gas, following manufacturer instructions and safety guidelines, are viable options. These solutions ensure compatibility, safety, and optimal performance.

Furthermore, the conversion of petrol generators to LPG generators for domestic use offers several benefits beyond cost savings. 

LPG and compressed natural gas (CNG) are generally cheaper than petrol, contribute to cleaner air quality, and can provide greater fuel availability and independence from fluctuations in petrol prices or supply disruptions. Moreover, CNG and LPG combustion produce less noise, which minimizes noise pollution in residential areas.

To ensure a safe and reliable conversion, it is essential to seek qualified professionals for the installation of appropriate conversion kits. 

He said the Lagos State Ministry of Energy and Mineral Resources and Lagos State Safety Commission can guide professional vendors, installation procedures, and safety guidelines.

No Cause for Alarm

On the contrary, Philip Obin, the Managing Director of Potech Limited, an ICT and marketing firm, expressed confidence in the safety of connecting cooking gas to petrol generators. 

According to him, even if the hose breaks and gas leaks while there is a nearby fire, it would only result in a fire burning from the hose without causing an explosion. 

He explained in an interview with the Guardian that explosions occur when gas leaks in enclosed spaces like kitchens, where the gas fills up the room and ignites. However, since the cylinder and generator are placed outside, the chances of explosion are minimized due to sufficient ventilation that disperses the leaking gas. 

In terms of cost and efficiency, Obin highlighted that a 12.5kg cylinder connected to a 2.5KVA generator can provide approximately 40-50 hours of electricity, depending on the generator’s load. 

He estimated the cost to be around N60 per hour, allowing for 10 days of usage if running it for five hours daily or four days if running it for 10 hours daily. Comparatively, using gas is significantly cheaper than petrol and does not face the same scarcity issues.

Regarding the installation process, Obin explained that anyone can easily install the carburetor by simply removing the old one and replacing it with the new one, connecting it to the gas cylinder. 

He referred to it as a “plug and play” process. While it can be done without professional assistance, he acknowledged that some individuals may prefer to have it fixed by a generator electrician for added peace of mind

Concluding Thoughts

While the trend of connecting cooking gas to petrol generators highlights the ingenuity of Nigerians in finding affordable energy solutions, it is crucial to prioritize safety and adhere to recommended practices. 

Stakeholders, including government agencies, energy providers, and consumers, should collaborate to address the potential risks associated with this practice. 

A comprehensive approach encompassing safety measures, infrastructure development, environmental considerations, and long-term energy planning is necessary to harness the benefits of gas as a fuel source for generators while mitigating potential risks.

This development has sparked public anxiety, despite the absence of an official government announcement regarding the implementation of subsidy removal.

The Federal Government in the past had said it plans to remove fuel subsidy in June, while announcing that Nigeria secured an $800 million grant from the World Bank as part of its subsidy palliatives measures ahead of the removal.

However, things are begining to take a new swift after some marketers across the country decided to take advantage of a momentary situation.

Charles Kelechi, a resident of Aba, confirmed to TechEconomy that fuel prices in Aba were being sold at a rate of N660 per liter. He stated that while some fuel stations were selling at excessively high prices, others were closed, instructing motorcyclists and bus drivers to leave.

On Monday night, fuel scarcity was experienced in most areas of Lagos. Akim Sani, a commercial driver, expressed his struggles in obtaining fuel due to the scarcity. He stated, “Even this morning, I am clueless about where to purchase fuel. I am unable to move my car because there is simply no fuel available.”

To address the ongoing concerns, the Asiwaju Bola Ahmed Media Centre has released a statement explaining President Bola Tinubu’s announcement regarding the fuel subsidy removal.

The Centre urges the public to refrain from panic-buying, which has ensued as a result of the speech.

According to the statement, it is important to note that President Tinubu’s declaration of “subsidy is gone” is not a new development or an action taken by his new administration.

He was simply communicating the existing status quo, considering that the previous administration’s budget for fuel subsidy was planned and approved only for the first half of the year.

This means that by the end of June, the Federal Government will no longer have funds to sustain the subsidy regime, leading to its termination.

The statement emphasizes that the panic-buying caused by this announcement is unnecessary and will not take immediate effect.

Furthermore, President Tinubu has outlined his plans to redirect the funds previously allocated to fuel subsidies towards more beneficial investments. These investments will aim to mitigate the effects of subsidy removal on the general public, especially the most economically disadvantaged individuals.

Examples of such investments include public infrastructure, education, healthcare, and job creation, which are expected to significantly improve the lives of millions of Nigerians and enhance their earning potential.

In summary, the statement clarifies that President Tinubu’s remark on the removal of fuel subsidy is not a sudden decision, but rather a result of the previous administration’s budgetary plans.

It also reassures the public that measures will be taken to utilize the redirected funds in ways that will positively impact the population.