Empirical analysis of fuel price and subsidy reform in Nigeria

Fuel subsidy removal has been a very topical and delicate issue in Nigeria. In spite of government assurance that the proceeds from the fuel subsidy withdrawal will be used judiciously and effectively to provide critical infrastructure that will cushion its effects, the opponents have remained resolute on their uncompromising stand against its removal. The goal of this study is to determine the actual size of fuel subsidy in Nigeria. It is therefore hypothesised that there was no significant relationship between price of fuel and fuel subsidy. Simple linear regression technique was used in the analysis. The results suggest that there was a significant relationship between the price of fuel and subsidy at less than 0.01 significant level (R-2 = 0.79). This implies that fuel subsidy accounted for 79 per cent of the actual price of fuel. This is an indication that government actually subsidised fuel by 79 per cent of the actual price per litre. In othersword, the consumers only paid for 21 per cent of the actual price per litre. This is evidence that fuel is highly subsidised in Nigeria. The study recommends gradual removal of subsidy, and using the money realised from it for cushioning the effects on the poor.