Shock Value

Shock Value

The Nigerian economy, like any other, experiences “shocks”— events or policy decisions that can send a ripple of changes through the system. This column zooms in on these ripples in a range of sectors to explore how and why these shocks matter.

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Does The Petroleum Equalisation Fund Work?

Ebehi Iyoha

Ebehi Iyoha

Ebehi is an avid reader seeking insights in unexpected places. Her research interests include economic development, political economy and trade.

In May 2016, after quietly phasing out the bulk of its subsidy program, the Federal Government raised the regulated price of premium motor spirit (PMS), commonly known as petrol, from ₦86.50 to ₦145. Contrary to popular belief, petrol prices were not deregulated. 

Demonstrating that point, the threat of fuel scarcity loomed large in January this year when the Independent Petroleum Marketers Association of Nigeria (IPMAN) issued an ultimatum over ₦150 billion in bridging payments owed to them by the government. Then in April, the Petroleum Products Pricing Regulatory Agency (PPPRA) had to quell rumours that the petrol prices would rise in tandem with increased bridging costs paid to marketers. 

At first glance, the reference to bridging costs is slightly confusing. If fuel subsidies were phased out, why is the government still making payments? And what do bridges have to do with this?

The answers lie in the Petroleum Equalisation Fund (PEF) and its mission of uniform pricing. A closer look at the fund's activities will reveal that it may be the last fuel subsidy standing and raises an urgent question: is it a subsidy worth keeping? 

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