International Journal of Finance and Accounting 2012, 1(5): 112-119 DOI: 10.5923/j.ijfa.20120105.05 Oil Subsidy Removal in Nigeria: Chasing Water Falls Essien Akpanuko 1,* , Isacc Ayandele 2 1 Department of Accounting, University of Uyo, P. M. B. 1017 Uyo, Nigeria 2 Department of Business Management, University of Uyo, P. M. B. 1017 Uyo, Nigeria Abstract This paper addresses the oil subsidy issues in Nigeria and the acclaimed benefits of its removal to the economy. It provides answers to 5 basic questions of the so-called oil subsidy in Nigeria: What is oil subsidy, origin, merits and demerits? Does oil subsidy exist in Nigeria, are all the petroleum products subsidized and who benefits from Nigeria’s oil subsidy? How will oil subsidy removal affect the masses? It argues that although the government is not transparent in the drive to transform the economy, there are essential actions necessary as a way forward to manage and resolve the crises: cut down the cost of governance, make our refineries work at worst 75% capacity and others. Keywords Subsidy, Oil, Economy, Government, Poverty 1. Introduction The recent oil subsidy removal by the Federal Government of Nigeria on the 1 st of January 2012 has been generating a lot of interesting debates and mixed reactions from different quarters. The government and her sympathizers argue that it highly economically to remove oil subsidy. A group disagrees completely with this position while another argues that there is no oil subsidy in Nigeria at all, thus considering its removal as cynical. This last group contends that what the government of Nigeria is funding in the name of subsidy is its inefficiency. They conclude that the government is not sincere in her transformation process. This position is upheld because since the oil subsidy debate began in 1985, government’s arithmetic on the subject, as on all other subjects, has never really agreed with that of its agencies nor has oil transactions been transparent. More so, the government has agreed that a ‘cabal’ is defrauding her of the so called subsidy. In addition to having conflicting statistics it also seems that government would subject ordinary Nigerians to underserved punishment rather than square-up with the members of the “oil cabal” that, on government’s own admission, have profited immensely from the so-called oil subsidy. However, subsidies of different types exist in different countries (developed and developing), for different products and for different reasons. Subsidies have advantages and disadvantages determined by the intent of its introduction and the approach in which the subsidy is used to achieve desired goal. The problem is that the policy makers, observers, and administrators of the economy do not have the * Corresponding author: eakpanuko@yahoo.com (Essien Akpanuko) Published online at http://journal.sapub.org/ijfa Copyright © 2012 Scientific & Academic Publishing. All Rights Reserved same view of fuel subsidy and its management. The questions arising from the above scenario are: i. What is oil subsidy, origin, merits and demerits? ii. Does oil subsidy exist in Nigeria, are all the petroleum products subsidized and who benefits from Nigeria’s oil subsidy? iii. How will oil subsidy removal affect the masses? iv. What is the way forward for the oil subsidy removal crises? The purpose of this paper is to provide an overview of the literature on this subject, make an effort to provide a common framework to identify key sources of disagreement, appraise the price of fuel in Nigeria, and provide a way forward. This is presented in four sections. The second section is concerned with the conceptual framework. It delineates the concepts of subsidy, origin, merits and demerits. It addresses the first research question. Section three is concerned with principles and issues of fuel subsidy in Nigeria. It also provides an analysis of fuel cost and price. It addresses the second and third questions. Section four presents the way forward. 2. The Conceptual Framework: Oil Subsidy, Origin, Merits and Demerits? The Organisation for Economic Co-operation and Development[1] defines a subsidy as “the result of a government action that confers an advantage on consumers or producers, in order to supplement their income or lower their costs.” Thus, energy subsidies come in two main forms: those designed to reduce the cost of consuming fossil fuels; and those aimed at supporting domestic fossil-fuel production[2]. A producer subsidy can have the effect of lowering fossil-fuel prices, thereby serving indirectly as consumer subsidy at the same time.