Nigerian governments love a good subsidy.
We have subsidies and price caps for electricity, petrol, natural gas, and university education. The government’s intentions (at least in the beginning) are almost always pure—they just want to protect citizens from high prices.
Key takeaways:
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The Nigerian government is addicted to price controls—it sets prices for petrol, natural gas, electricity, and even university education.
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However, the price cap on domestic natural gas is worse than you might have imagined.
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The impact of Nigeria’s domestic natural gas cap ranges from an underdeveloped gas sector to gas flaring, pollution and poverty.
Unfortunately, in practice, price caps always remind me of the iconic quote by Harvey Dent from The Dark Knight: “You either die a hero or live long enough to become a villain”.
You see, the problem with price caps is that governments just don’t know when to stop.
Take Nigeria’s petrol price cap, for example. It was introduced in the 1970s, over 50 years ago, following an oil price shock that increased petrol prices for Nigerians. The cap was initially intended as a temporary relief from an unexpected economic hurdle, and the government should have lifted the caps after the price shock had passed. But, the oil dollars flowed, and the government could afford it.
Fast-forward to 2022, the subsidy is still in place, and despite an oil price boom, the oil dollars are definitely not flowing due to lower production volumes. In fact, saying that the petrol subsidy has gotten out of hand is probably an oversimplification at this point.
Our petrol subsidy has become one of the villains in Nigeria’s origin story. It’s overtaken the Nigerian National Petroleum Company’s (NNPC) revenues to the extent that the company hasn’t remitted a kobo to Nigeria’s Federation account this year. The opportunity cost of the subsidy is even more significant. This year, the Federal government’s petrol subsidy will cost two times more than its expenditure on education, healthcare, infrastructure, and housing combined, even as two in three Nigerians suffer from multidimensional poverty—a genuinely devastating statistic.
But, today, we’ll focus on one of the government’s less popular price caps that’s just as harmful (if not more) as the petrol subsidy—the cap on domestic natural gas prices. Here, there's no subsidy payment like petrol or electricity, where the government pays industry players the difference between the market price and the price cap.
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