Nigeria’s economic debate has been reduced to a misleading binary: subsidy is bad and subsidy removal is good. That is not serious economic analysis. The real question is what form of government intervention can protect Nigerians from excessive energy costs while building domestic productive capacity, reducing import dependence and maintaining fiscal discipline.
Atiku Abubakar’s proposed rethink is not a return to the old import-subsidy regime. It is a fundamental policy redesign: moving intervention from importation to domestic production.
Under the proposal, qualifying Nigerian refineries—public or private—would have access to domestic crude at a preferential price, subject to strict and transparent conditions. The objective is to reduce refinery input costs, expand domestic refining, lower petroleum prices, reduce foreign-exchange demand and ultimately make subsidy unnecessary.
THE LEGAL FOUNDATION ALREADY EXISTS
Importantly, the proposed production-oriented approach is not without a legal foundation in Nigeria’s existing petroleum law.
The Petroleum Industry Act (PIA) 2021 expressly created a statutory framework for the Domestic Crude Oil Supply Obligation (DCSO) under Section 109.
Section 109(1) establishes the principle that the supply of crude oil and condensates for the domestic market is to be conducted on a willing-supplier/willing-buyer basis. More importantly, Section 109(2) empowers the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to issue regulations or guidelines for imposing a domestic crude oil supply obligation on upstream petroleum operators, including applicable penalties.2
The statutory architecture goes further. Under Section 109(3), the relevant downstream authority is required to provide the Commission with the crude-oil requirements of refineries in operation and report shortages or inadequate supply. Section 109(4) requires the DCSO framework to ensure, among other things, that crude is supplied to holders of refining licences whose refineries are in operation.
The PIA therefore already recognises a fundamental national-policy objective:
«Nigeria should not be an oil-producing country that exports crude while depending excessively on imported refined petroleum products.»
The NUPRC has subsequently operationalised this statutory mandate through the Production Curtailment and Domestic Crude Oil Supply Obligation Regulations, 2023, made pursuant to Section 109(2), and through its later DCSO implementation framework.
This is crucial to the policy argument.
Atiku is proposing to build upon an existing statutory policy architecture—not to invent an entirely new legal principle.
The distinction is that his proposal seeks to use this domestic-crude framework more deliberately as an instrument of consumer protection, industrial development and temporary energy-cost intervention, with explicit fiscal limits and safeguards.
WHY THE OLD MODEL FAILED
Nigeria’s former subsidy regime had serious structural weaknesses. It encouraged dependence on imported refined products, exposed the economy to international prices and exchange-rate volatility, created opportunities for fraudulent import claims and opaque under-recovery calculations, and generated potentially uncontrolled fiscal liabilities.
The lesson, however, is not that every subsidy is inherently wrong.
The lesson is that poorly designed subsidies create rent-seeking and fiscal waste.
Atiku’s proposal therefore seeks to replace an import-dependent subsidy with a targeted, production-based industrial intervention.
THE SUBSIDY MUST FOLLOW THE BARREL
The central safeguard is traceability.
Every subsidised barrel must be tracked from:
crude allocation → refinery receipt → processing → production yield → inventory → domestic distribution → final sale.
Government must know how much crude was allocated, to whom, at what price, how much was actually refined, what products were produced, where those products went and what price consumers ultimately paid.
This eliminates the central weakness of the old system: paying subsidies based on claims that cannot be independently verified.
STRICT ELIGIBILITY AND CONSUMER BENEFIT
Access to preferential crude must not be discretionary or politically determined. Any public or private refinery meeting predetermined criteria should qualify.
Eligibility should depend on:
- verified refining capacity;
- actual utilisation;
- production efficiency;
- regulatory compliance;
- transparent accounting;
- domestic-supply commitments;
- independently verified production; and
- demonstrable consumer benefit.
A refinery cannot receive cheaper crude and simply retain the benefit as additional profit. The advantage of the preferential crude must be reflected in a transparent domestic pricing formula.
The purpose is therefore not to subsidise refinery owners.
It is to reduce the cost of energy to Nigerians.
A HARD FISCAL CEILING
There must be no blank cheque.
Atiku has said the programme should operate within a predetermined annual fiscal ceiling approved through the federal budget. The government must establish in advance the maximum subsidy envelope, eligible crude volume, subsidy per barrel and qualifying refineries.
There should be no retrospective under-recovery claims, unlimited liabilities or off-budget obligations.
This is particularly important because the proposal does have a fiscal cost.
THE FEDERATION REVENUE QUESTION
If Nigerian crude is supplied to refineries below its market-equivalent value, the Federation incurs an opportunity cost. That can affect the revenue available for distribution to the Federal, State and Local Governments.
This cost should not be hidden through unexplained deductions or opaque expenditure arrangements. It must be quantified, budgeted, disclosed and independently audited.
The question is therefore not whether the intervention costs government anything. It does.
The proper economic question is whether its controlled and transparent cost is justified by the wider benefits it generates.
Those benefits include lower fuel prices, reduced transport and logistics costs, lower inflationary pressure, increased domestic refining, reduced petroleum imports, lower foreign-exchange demand, greater industrial activity and increased employment.
WHY DOMESTIC REFINING CHANGES THE EQUATION
Nigeria’s expanding domestic refining capacity creates an opportunity that did not previously exist at scale.
Rather than spending scarce resources perpetuating dependence on imported petrol, government can use temporary support to make domestic refining more competitive.
The economic chain is:
Preferential crude → lower refinery costs → increased domestic refining → reduced imports → lower FX demand → lower energy costs → reduced inflationary pressure → increased purchasing power and economic activity.
The policy is therefore an industrial strategy, not merely a petrol-price intervention.
INTERNATIONAL LESSONS
International experience demonstrates that governments can use targeted energy interventions while simultaneously pursuing subsidy reform.
Jordan illustrates the importance of moving away from indiscriminate subsidies toward targeted protection and fiscal discipline.
Indonesia demonstrates both the difficulty of fuel-subsidy reform and the importance of combining price reform with targeted support and a clear fiscal framework.
The lesson is not to copy either country’s system mechanically. It is that subsidy reform should be designed around transparency, targeting, fiscal sustainability and protection of vulnerable consumers.
SAFEGUARDS AGAINST ABUSE
The proposed programme must include strong enforcement.
A refinery that diverts subsidised crude, falsifies production records, manipulates inventories, exports subsidised products contrary to the rules or fails to pass the benefit to consumers should face immediate suspension, loss of eligibility, recovery of the subsidy and appropriate civil or criminal sanctions.
Independent auditors should verify crude allocation, refinery receipts, production, inventories, domestic deliveries, pricing and subsidy calculations.
Technology should provide a digital audit trail for every subsidised barrel.
There must also be no political allocation. Eligibility must be determined by transparent rules rather than ministerial discretion.
A SUBSIDY DESIGNED TO END
Perhaps the most important safeguard is that the intervention must be temporary.
As domestic refining capacity increases, utilisation improves, competition expands and production costs decline, the subsidy should progressively reduce.
The objective is not to create another permanent subsidy culture.
It is to use temporary public intervention to build a domestic refining industry that eventually requires no subsidy.
The programme should therefore contain sunset provisions and measurable performance benchmarks.
Government should continuously assess:
- fiscal cost;
- refinery output;
- consumer prices;
- inflation;
- foreign-exchange savings;
- investment;
- employment; and
- additional economic and tax activity.
If the programme fails to deliver measurable benefits, it should be modified or terminated.
CONCLUSION
Nigeria needed economic reform in 2023. But economic reform did not require the country to conclude that every form of government intervention was inherently illegitimate.
The central issue is not the word subsidy. It is how the intervention is designed, financed, monitored and ultimately terminated.
Atiku’s proposal seeks to replace the old system of opaque, import-dependent subsidy with a model based on:
domestic production, transparent pricing, barrel-by-barrel traceability, independent auditing, consumer protection, fiscal limits and a clear exit strategy.
Critically, the policy has a foundation in Nigeria’s own petroleum legislation. Section 109 of the PIA already establishes the Domestic Crude Oil Supply Obligation framework, while the 2023 DCSO Regulations and subsequent NUPRC framework provide mechanisms for its implementation.
Indeed, NUPRC’s own 2026 reporting confirms that the DCSO is currently being implemented under the PIA framework, although actual deliveries have fallen substantially below allocated volumes, with pricing gaps identified as one of the problems affecting implementation.
The policy challenge, therefore, is not whether Nigeria can legally support domestic refining through its petroleum framework. It already can.
The challenge is how to make that framework work efficiently, transparently and in the direct interest of Nigerian consumers.
The fundamental proposition is simple:
«Nigeria should not subsidise importation when it can support production.»
And the ultimate objective is equally clear:
«Use a temporary, targeted and fiscally capped intervention to build a competitive Nigerian refining industry, lower the cost of energy to citizens and create the conditions in which subsidy itself eventually becomes unnecessary.»
Alex Ter Adum, PhD
For: D-37, A PUBLIC POLICY REFORM ADVOCACY GROUP.
