An energy policy expert, Samuel Caulcrick, has warned that any move by the Federal Government to reintroduce petroleum subsidies through crude supply to local refineries would lead to cross-border fuel smuggling and undermine recent gains from deregulation.
Expert Reacts to Calls for Government Support
Caulcrick, reacting to growing calls for government support to local refineries to ease the cost of petrol and other fossil fuels, emphasised that such interventions could inadvertently benefit neighbouring countries rather than Nigerians. Speaking with The Guardian in Lagos yesterday, Caulcrick insisted that price differentials across borders historically create incentives for illicit trade.
Smuggling as Market Arbitrage
He argued that smuggling was essentially a form of market arbitrage driven by price imbalances, adding that whenever commodities could move across borders, traders are incentivised to exploit pricing gaps. Nigeria, he said, had long struggled to contain the smuggling of refined petroleum products, noting that removal of fuel subsidies and the adoption of market-driven pricing had helped narrow profit margins for smugglers, acting as a natural deterrent.
He, however, said that subsidy removal had significantly increased the cost of living for many Nigerians, raising concerns about affordability and economic hardship.
Caulcrick's Concerns
He said: “I’d rather not support subsidising oil input to our local refineries for reasons of unintended subsidising our neighbours. There are other issues raised about opening the gates for foreign airlines coming in to tank our subsidised aviation fuel.
“How do we balance fuel affordability with border security? It calls for Targeted Digital Subsidies. Reintroducing petroleum subsidies for local refineries would likely revive the smuggling of refined fuel across Nigeria’s borders.
“Smuggling is a form of market arbitrage, and it is not unique to Nigeria. As Adam Smith observed in The Wealth of Nations, he was struck by how some individuals exploit price differences while others do not. Any transferable commodity that moves across borders creates that incentive.”
Proposed Targeted Digital Subsidy System
To address this dilemma, the expert proposed the adoption of a targeted digital subsidy system, which would provide relief directly to consumers without distorting market prices. According to him, under this model, benefits would be delivered through a non-transferable digital credit system tied to verified identities, ensuring that only eligible Nigerians received the subsidy.
He insisted such a system would prevent exploitation by cross-border smugglers since the credits would not be transferable or tradable outside the country. However, he expressed that implementing a nationwide digital subsidy framework would require robust infrastructure, including a reliable identity system such as the National Identification Number (NIN), as well as strong technological capacity to prevent fraud and duplication.
He also warned that poorly calibrated digital credits could create unintended consequences, including the emergence of a parallel black market.
Complementary Measures Needed
Beyond subsidy reforms, Caulcrick emphasised the need for complementary measures such as strengthening border surveillance through advanced technologies like drones and scanners, particularly under the Nigeria Customs Service and reviewing tariff regimes that may be encouraging illicit trade.
