Compensation Mechanisms for Fuel Subsidy Removal in Nigeria

The document argues that fuel subsidy reform is essential for Nigeria's economic diversification but requires a 'portfolio approach' to compensation to prevent social unrest and protect the poor. It proposes seven specific programs—including transport vouchers, mass transit schemes, and e-wallets for farmers—with an estimated first-year budget of ₦250 billion (USD 1.3 billion). The report emphasizes that these measures should be implemented through existing ministries rather than new institutions, with oversight provided by a new Directorate for Subsidy Reinvestment Monitoring under the National Planning Commission.

• Fuel subsidies in Nigeria have historically been unsustainable, at one point consuming over a third of the recurrent budget and diverting resources from pro-poor interventions.
• The report recommends a 'portfolio approach' to compensation, combining multiple measures to address diverse needs and reduce the risk of excluding vulnerable groups.
• The proposed compensation portfolio consists of seven specific measures: transport vouchers, mass transit schemes, E-Wallets for smallholder farmers, free school meals, free health care for the vulnerable, a cash transfer scheme, and a vocational skills development program.
• Initial cost estimates for the proposed seven compensation programs are approximately ₦226.8 billion, with a total budget not expected to exceed ₦250 billion (USD 1.3 billion) in the first year.
• To ensure oversight without creating unnecessary bureaucracy, the report suggests using existing ministries and creating a Directorate for Subsidy Reinvestment Monitoring (DSRM) under the National Planning Commission, with the subsidy fund domiciled in the Office of the Vice President.
• International evidence from countries like India shows that gradual, incremental price increases can be an effective form of impact mitigation by avoiding one-off shocks and reducing price gouging.
• Case studies from Brazil and Indonesia highlight the effectiveness of using existing social welfare registries and proxy means testing to target assistance to the poorest households.
• The report warns that poorly designed social protection policies can be as expensive and inefficient as the subsidies they replace, citing Iran's untargeted cash transfers which cost more than the savings from subsidy reform.
• Nigeria's fuel subsidy regime has been characterized by a lack of transparency in determining the Expected Open Market Price (EOMP), leading to widespread corruption and leakages.

APA

Adeoti, J. O., Chete, L., Beaton, C., & Clarke, K. (2016). Compensation Mechanisms for Fuel Subsidy Removal in Nigeria. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/compensation-mechanisms-fuel-subsidy-removal-nigeria.pdf

Chicago

Adeoti, John O., Louis Chete, Christopher Beaton, and Kieran Clarke. Compensation Mechanisms for Fuel Subsidy Removal in Nigeria. International Institute for Sustainable Development, 2016. https://www.iisd.org/system/files/publications/compensation-mechanisms-fuel-subsidy-removal-nigeria.pdf.

Wikipedia

{{cite report |last1=Adeoti |first1=John O. |last2=Chete |first2=Louis |last3=Beaton |first3=Christopher |last4=Clarke |first4=Kieran |title=Compensation Mechanisms for Fuel Subsidy Removal in Nigeria |publisher=International Institute for Sustainable Development |date=December 2016 |url=https://www.iisd.org/system/files/publications/compensation-mechanisms-fuel-subsidy-removal-nigeria.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{adeoti2016compensation, author = {Adeoti, John O. and Chete, Louis and Beaton, Christopher and Clarke, Kieran}, title = {{Compensation Mechanisms for Fuel Subsidy Removal in Nigeria}}, institution = {International Institute for Sustainable Development}, year = {2016}, month = dec, url = {https://www.iisd.org/system/files/publications/compensation-mechanisms-fuel-subsidy-removal-nigeria.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }