By Alex Ter Adum, PhD
We understand the actuarial concerns about fuel subsidy: volatility, exchange-rate exposure, leakage, fiscal pressure and poor targeting are legitimate risks. But the argument becomes incomplete when it treats the AERP Subsidy Reform Proposal as merely another version of Nigeria’s old import-dependent consumption subsidy.
That is not what is being proposed.
The fundamental economic question is: what happens when Nigeria stops exporting raw materials and starts processing them at home?
Consider Cross River and Benue, for instance. Would anyone seriously argue that exporting raw palm kernels, plantain and pineapple, or our famous sweet Benue yams, and then importing their processed derivatives, is economically superior to processing them locally?
No—at least not if one is approaching the question through classical economics rather than partisan pseudo-intellectualism.
Domestic processing creates employment, stimulates transportation and logistics, generates industrial demand, expands the tax base, creates markets for farmers, encourages technology transfer and retains a much larger proportion of the value chain within Cross River and Benue.
The multiplier effects would be felt at both the micro and macroeconomic levels, from household incomes and small businesses to industrial output, tax revenues and GDP growth.
That is economy of scope.
The same principle applies to crude oil.
Exporting crude and importing petrol means Nigeria captures value at the lowest end of the petroleum value chain while paying others to perform the higher-value stages of refining, logistics and petrochemical processing.
Local refining, however, reverses that relationship.
It creates industrial linkages, reduces import dependence, saves foreign exchange, strengthens our national energy security and enables Nigerian businesses and workers to capture value that would otherwise be created abroad.
Any temporary reduction in crude-related revenue available for distribution through the Federation Account Allocation Committee (FAAC) must therefore be assessed against these wider economic gains: foreign-exchange savings, domestic industrial activity, employment, tax generation, downstream investment and the multiplier effects of retaining more of the petroleum value chain inside Nigeria.
That is economy of scale and value-chain integration.
THE IPMAN DEVELOPMENT: THE POLICY CONVERSATION HAS MOVED
This is why the recent intervention by the Independent Petroleum Marketers Association of Nigeria (IPMAN) is significant.
On 3 September 2026, former Vice President Atiku Abubakar, GCON, reacted through his Senior Special Assistant on Public Communication, Phrank Shaibu, to IPMAN’s call for government intervention with domestic refiners to reduce petrol prices.
Atiku’s response was unequivocal: IPMAN had come late to the conversation, but had arrived at the right conclusion. He argued that the association’s position reinforced the central proposition behind his own subsidy revision policy, that deliberate intervention around domestic refining can reduce the burden of petrol prices on Nigerians while strengthening domestic refining capacity.
This is important because IPMAN is not an opposition political party. Its members buy, distribute and sell petroleum products every day. They operate at the point where the economics of crude, refining, transportation, distribution, pump prices and consumer demand converge.
When the people operating inside the downstream petroleum market begin calling for government intervention around domestic refining, the argument can no longer be dismissed simply as the political obsession of an opposition candidate.
The policy conversation is moving.
And that is precisely why the actuarial argument needs to engage with the actual architecture of AERP, rather than attacking it as though it were the old import-subsidy regime.
AERP IS NOT THE OLD IMPORT-SUBSIDY BAZAAR
We agree that a conventional fuel subsidy can create an open-ended consumption liability whose cost rises with crude prices, exchange rates, import volumes and consumption.
But that is precisely why it is important to distinguish the old import-subsidy regime from the AERP model published by Phrank Shaibu, the Senior Special Assistant to HE Atiku Abubakar, GCON, on Public Communication, on 20 August 2026.
AERP is designed around a fundamentally different principle: the subsidy follows the barrel.
Rather than subsidising the importation of finished petrol, the intervention is directed toward domestic refining and production, with the objective of ensuring that the benefit travels through the production chain to the Nigerian consumer.
As Atiku himself put it in his recent response to the IPMAN support for the policy, the distinction is between an import-subsidy bazaar and a transparent, production-linked intervention designed to strengthen Nigerian refining and deliver measurable relief to consumers.
That distinction is central to the actuarial argument.
A conventional import subsidy effectively exposes government to an uncertain consumption bill.
A properly structured AERP creates a bounded, measurable and production-linked fiscal exposure.
And the fiscal safeguards are not merely theoretical recommendations invented to rescue the proposal from criticism. They form part of the architecture being advanced.
First: AERP is designed to operate within a predetermined fiscal ceiling.
The annual production-support commitment is to be defined and appropriated through the national budget.
The government therefore establishes its maximum exposure rather than allowing the liability to expand indefinitely with whatever happens to international crude prices, exchange rates or domestic consumption.
More precisely, the fiscal ceiling should constitute a hard statutory limit on the aggregate public liability arising from AERP within a defined financial year.
Once that ceiling is reached, no additional AERP obligation can be incurred without a fresh appropriation by the National Assembly.
The ceiling should encompass the maximum aggregate subsidy commitment, including committed but unpaid obligations, and should be based on disclosed assumptions concerning eligible production volumes, subsidy per barrel or litre, programme duration and relevant fiscal risks.
In actuarial terms, this converts an uncertain liability into a bounded fiscal exposure.
If actual production, international prices, exchange-rate movements or other variables would otherwise push the programme beyond the approved ceiling, government does not automatically absorb the excess. A predetermined adjustment, suspension or fresh legislative appropriation becomes necessary.
Second: The intervention is appropriation-based and transparently budgeted.
The fiscal cost is brought within the normal constitutional and parliamentary budgetary process rather than being allowed to accumulate as an opaque or off-budget obligation.
The National Assembly retains control over the appropriation, while the fiscal implications are exposed to public scrutiny.
This is a crucial actuarial safeguard because an obligation that cannot be measured, appropriated and reported properly cannot be responsibly managed.
Third: Payment follows verified production, not declarations or theoretical refinery capacity.
A refinery does not qualify merely because it possesses a licence or claims a particular production capacity.
The intervention is tied to actual qualifying production and domestic supply, with refinery intake, production volumes, yields and domestic deliveries capable of being reconciled.
In other words, the subsidy follows actual barrels and actual production, not paperwork.
Fourth: The benefit is tied to domestic supply and consumer outcomes.
The preferential crude or production support is not intended to become an unconditional windfall to refiners.
The refinery must meet the relevant domestic-supply conditions and transmit the benefit through the value chain to Nigerian consumers.
The policy objective is therefore not merely to make refining profitable.
It is to make domestic refining productive, sustainable and beneficial to Nigerian consumers.
Fifth: The architecture addresses arbitrage, diversion and leakage.
Where subsidised inputs or products are diverted, production figures manipulated or the conditions attached to the intervention breached, the operator can lose eligibility and become liable for recovery and sanctions.
The objective is to ensure that the fiscal intervention follows the productive activity rather than disappearing into rent-seeking.
Sixth: Independent verification and auditing are integral to the model.
Production, deliveries, pricing and the corresponding fiscal support are subject to verification and reconciliation.
This matters because actuarial risk is not eliminated merely by describing a programme as “targeted.”
Risk is reduced when claims can actually be independently measured, audited, reconciled and challenged.
Seventh: AERP is conceived as a declining and ultimately temporary intervention.
Its purpose is not to create another permanent subsidy culture.
As domestic refining capacity expands, utilisation improves, competition develops and production costs fall, and particularly where international crude prices fall below the relevant budgetary benchmark, the need for intervention should decline or disappear.
The objective is therefore not to create permanent government dependence but to use temporary support to accelerate the development of competitive domestic productive capacity.
These features fundamentally change the actuarial character of the intervention.
THE ACTUARIAL QUESTION IS THEREFORE DIFFERENT
The question should not simply be:
“How much will AERP cost the government?”
It should be:
“What is the legally permitted maximum fiscal exposure, what triggers the crude-discount intervention, how is performance verified, who bears the risk of non-performance, what productive capacity is being created, what economic risks are being transferred or avoided, and does the measurable economic return justify the capped fiscal commitment?”
That is the proper actuarial test.
And there is an even more fundamental omission in the conventional actuarial critique.
An actuarial assessment that counts the cost of supporting domestic production but ignores the cost of not producing is incomplete.
What is the cost of continuing to import billions of dollars’ worth of refined petroleum products?
What is the cost of exporting crude while allowing refining margins, petrochemical opportunities and associated industrial activity to be created abroad?
What is the cost of lost jobs, lost tax revenues, lost foreign-exchange savings, lost technology transfer and lost industrial capacity?
What is the cost to Nigerian manufacturers when expensive energy makes domestic production uncompetitive?
What is the cost to farmers when transportation costs rise because energy costs rise?
What is the cost to households when the price of petrol feeds directly into transportation, food distribution, production and the purchasing power of wages?
Those costs may not appear under a budgetary heading called “subsidy,” but they are nevertheless real economic costs.
THE AGRICULTURAL ANALOGY EXPOSES THE CONTRADICTION
The same principle is obvious in agriculture.
Would anyone seriously contend that Nigeria is better off exporting raw palm kernels, plantain, pineapple, cassava, rice, beniseed, soya beans, yams, oranges, mangoes and other agricultural commodities, only to import the processed products at several multiples of the value of the raw commodities?
If that logic is economically indefensible for agriculture, why should crude oil receive a special exemption from the basic principles of value addition, industrialisation, economies of scale and domestic value-chain development?
Why should Nigeria be told that processing agricultural commodities at home is industrial policy but processing crude oil at home is somehow an unacceptable subsidy?
That is an intellectual contradiction.
AND THEN COMES THE MOST INTERESTING POLITICAL QUESTION
There is an irony in the present debate that should not be lost on Nigerians.
Atiku has alleged that, while the Tinubu administration publicly denounces his AERP approach, his team has also received what he described as “credible intelligence” that the government is considering bringing back fuel subsidy “through the back door” ahead of the 2027 election. This remains an allegation by Atiku; the available reporting does not independently establish that such a government plan exists.
But if the administration that spent years presenting subsidy removal as an economic necessity is now contemplating intervention to reduce petrol prices, the irony is difficult to ignore.
It would raise a very simple question:
If intervention is economically indefensible, why contemplate it?
And if intervention around domestic refining is now being considered because Nigerians can no longer bear the consequences of unaffordable energy, then what exactly was so intellectually sacrosanct about dismissing the same principle when Atiku proposed it?
This is where the debate transcends Atiku versus Tinubu.
If the underlying economics of supporting domestic refining are sound, then the idea does not become bad economics merely because Atiku proposed it.
And if the idea is now being considered by those who previously condemned it, then perhaps the real disagreement was never entirely about economics.
Perhaps it was also about political ownership.
But we must be careful here. Government adoption of a policy principle would not, by itself, prove that the earlier policy was wrong or that partisan considerations caused its rejection. Those are political inferences, not established facts.
What can be established is the increasingly difficult contradiction: the policy conversation is moving toward targeted intervention around domestic refining even as the old blanket opposition to subsidy is becoming harder to sustain. IPMAN has now called for government intervention; Atiku says this vindicates the central principle of his proposal; and the government faces mounting pressure to make petrol more affordable.
That is precisely why the AERP proposal deserves to be judged on its economic architecture rather than on the identity of its author.
SUBSIDY IS NOT THE ENEMY. BAD SUBSIDY IS.
Every major economic policy carries risk.
The question is whether the risk is properly designed, capped, monitored and justified by the economic return.
If AERP succeeds in increasing domestic refining, reducing import dependence, conserving foreign exchange, creating industrial jobs, expanding the tax base and lowering the structural cost of energy, then its economic value cannot be assessed merely by adding up the fiscal support provided and subtracting it from potential FAAC revenue.
We must also account for the economic costs avoided and the productive capacity created.
That is the difference between looking at AERP as a recurring expenditure and looking at it as a time-bound industrial-policy instrument.
The objective is not to subsidise Nigerians forever.
The objective is to use a controlled fiscal intervention to change the economics of production itself, to make domestic refining viable, reduce dependence on imported products, build industrial capacity and progressively eliminate the need for the intervention.
That is a completely different proposition from writing an unlimited cheque for imported petrol.
THE REAL ACTUARIAL CALCULATION
The proper actuarial calculation must therefore have two columns.
On one side:
The cost of AERP.
On the other:
The cost of not producing.
The first includes fiscal expenditure, foreign-exchange exposure and implementation risks.
The second includes import dependence, lost refining margins, lost jobs, lost tax revenues, lost industrial investment, lost foreign-exchange savings, higher transportation costs, higher production costs and the continuing export of economic value that Nigeria could capture domestically.
Only when both columns are properly calculated can anyone honestly claim to have performed a complete actuarial assessment.
Rejecting local-production support simply because subsidies can be abused confuses bad implementation with bad policy.
Nigeria cannot forever pursue an economic model in which it exports raw materials, exports jobs and imports finished products.
We must move from an economy that exports value and imports value-added products to one that processes, manufactures and captures value domestically.
The objective should therefore be to support local production and value addition, not indefinite support for the importation of finished products for consumption.
If AERP can be improved, improve it.
If its fiscal risks can be controlled, control them.
If its safeguards need strengthening, strengthen them.
But let us debate the proposal on the basis of its design, evidence, measurable outcomes, maximum fiscal exposure, opportunity cost and economic return, rather than allowing partisan hostility toward Atiku Abubakar to substitute for economic analysis.
Because ultimately, the actuarial question is not simply:
“What will it cost Nigeria to support production?”
It is also:
“What will it cost Nigeria if we continue refusing to produce?”
And that second question may be the one Nigeria has been avoiding for decades.
An actuarial assessment that counts the liability of production support but ignores the liability of economic underproduction is not a complete risk assessment.
Alex Ter Adum, PhD
— AA MOVEMENT FOR A BETTER NIGERIA —
