Why Fuel Subsidies Are Illegal and Unconstitutional 

Like a recurring decimal, (seemingly for the umpteenth time), the issue of subsidisation of petroleum products (specifically PMS or Premium Motor Spirit) has once again become topical and is hugging the headlines. This follows the announcement by the new administration of President Bola Tinubu, that there is no provision for fuel subsidy in the budget for the rest of the year. The public reaction that greeted that news has been predictably one of alarm and the usual tension, manifesting in panic-buying of fuel. Beyond the knee-jerk responses, however, I believe that on a calm, rational analysis, no attempt at ending the programme in Nigeria will succeed, unless it is situated within the context of the law. 

To start with, no law backs the practice of subsidising petroleum products in Nigeria. Before reviewing the various extant legislations on the subject, it is essential to understand what a subsidy means. A subsidy is simply an amount of money paid by the Government or an organisation to reduce the cost of producing a product, in order to keep its price low. See the Oxford Advanced Learner’s Dictionary, 6th edition, page 1194. No law imposes such an obligation on the Government. The relevant extant laws are the following:

i. The Petroleum Industry Act, 2021;

ii. The Price Control Act, 1977;

iii. The Petroleum Equalisation Fund;

iv. The provision for subsidies in the annual Appropriation Acts or Budget;

v. Item 62(e) of the Exclusive Legislative List in Schedule Two of the 1999 Constitution of the Federal Republic of Nigeria.  

By virtue of this last enactment, that is, Item 62(e) of the Exclusive Legislative list of the Constitution, only the National Assembly has the power to control the prices of any product in Nigeria. This power is, however, not at large, but is to be exercised only in respect of essential products and commodities as designated by the Assembly. It is important to point out that, this provision recognises price control and not subsidisation. The two don’t mean the same thing. This is because, whilst a subsidy is a means of controlling prices, not all price control measures involve subsidies, as it depends on the modalities, if any, applicable in any given case. 

I submit that the express terms of the relevant one in this case, that is, the Price Control Act, leave no room for conjecture that the National Assembly intended to subsidise petroleum products. Accordingly, the annual practice of appropriating funds in the Budget for fuel subsidy payments is illegal because, it is inconsistent with this law. I believe this will become evident, from the following analysis of the law.

The First Schedule to the Act lists nine different products, as being subject to price control at the discretion of the Minister of Commerce; petroleum products are Item 7 on that list. The Act is not silent on the parameters to be applied in are contained in fixing the open market price of any product. Those parameters are contained in Section 5 of the Act, which recognises two different scenarios – a basic price (Section 5(1) (a)) and a permitted variation to the basic price (Sec. 5(1)(b)). By virtue of Section 1(1) of the Act, the Price Control Board is the sole body responsible for fixing the basic and the variation permitted thereto for the whole country. This, the Board does, by notice published in the Federal Gazette. 

With regard to the basic price, Section 5(2) of the Act differentiates between locally produced goods, and goods imported into Nigeria. In respect of goods produced (or fuel refined) in Nigeria, the basic price is “the price which, in the opinion of the Board, properly represents the cost of production of the commodity, plus the manufacturer’s profit” – Section 5(2)(a). In the second case of imported goods, the basic price is “the duty-paid landed cost in Nigeria plus the importer’s profit” – Section 5(2)(b). Section 5(3) of the Act permits a variation to the basic price, being an amount which, in the opinion of the Price Control Board, “represents the transport and other costs plus the distributor’s profit, which ought properly to be added to the basic price in order to represent a fair controlled price, wholesale or retail, in any State”.

It can be seen that the two, that is, the basic price and the permitted variation, constitute the controlled price of the commodities listed in the First Schedule to the Act. Section 4 of the Act is peremptory in its mandate that “price control shall continue to be imposed in accordance with this Act on any goods which are of the kind specified in the First Schedule to this Act”. This means that the prices of the goods listed in the Act should be controlled exclusively in accordance with the provisions of the Act, the maxim being expressio unius est exclusio alterius – the express mention of one thing in a statute suggests the exclusion of others, which otherwise might be reasonably implied or included. Suffice it to say that, no statute requires the government to absorb part of the cost of the importer or local producer of petroleum products, in order to reduce their open market or controlled prices. In other words, no law requires the government to subsidise petroleum products. 

The Price Control Act received judicial imprimatur by the Federal High Court, Abuja in a judgement delivered by Honourable Justice Adamu Bello (now retired) on the 19th day of March, 2013 in Suit No. FHC/ABJ/CS/591/09 between Bamidele Aturu and Hon Minister of Petroleum Resources, the Hon. Minister of Commerce & Tourism and the Attorney-General of the Federation. There, the court ordered the Government to “fix the prices of petroleum products, as mandatorily required by the Petroleum Act and the Price Control Act.” It is important to note that, the court merely ordered the Government to fix – not to subsidise – fuel prices. 

This judgement is currently on appeal, at the instance of the Government. But, it subsists, and has not been set aside. Until then, it is clear that the Government would be remiss to not ‘fix’ the prices of petroleum products, as provided by the Price Control Act. Given that, as previously stated, this statute does not require the Government to subsidise petroleum products (but merely to fix their prices – which don’t mean the same thing, as aforesaid), It is obvious that complying with the terms of the judgement would actually enable the Government to end the current regime of subsidies in the petroleum sector, albeit fortuitously. Without firing a shot.

This is because, applying the parameters in Section 5 of the Price Control Act, would mean passing the entire costs of production, refining and importation of fuel to the consumer at the fuel pump (in the open market) – with the Government under no legal obligation whatsoever to absorb any part of those costs. It bears repeating that in Bamidele Aturu’s case, the court ordered the Government to fix the prices of petroleum products in accordance with the Price Control Act: no one in his right senses will blame the Government for complying with a court order.  

The question now is: what would it take? A campaign of sensitisation and awareness of the Nigerian public, in my view, particularly critical stakeholders such as the labour movement, petroleum marketers, transporters (and, of course, the public) – as well as the constitution/composition of the Price Control Board as provided by Section 1(1) of the Price Control Act. By way of mitigation, the Government can waive the custom duty required to be paid on imported fuel. I submit that the only component of the Price Control Act which is open to negotiation, is the profit margin of the marketers; to expect the Government to do more, in my view, would be asking it to bend the law to breaking point. 

The palliatives which the new administration of President Bola Tinubu has reportedly directed the State oil company to implement in order to cushion the impact of the removal of the subsidy, are yet to be outlined. But, it is obviously a step in the right direction, as the common (and not-so-common) man must not be left to bear the brunt of the policy change – desirable as it clearly is. I believe that, at the end of the day (in the long run) we will all be better off, collectively, without the false economy of a policy, whose greatest demerit is it’s outright illegality.