Currently we import most of the fuel we use in Nigeria. These imported fuel come in at more than N65 per litre meanwhile the importers are forced to sell at that price. In order for them not to make any loss government pays the difference between the imported cost and the pump price hence the much talked about subsidy. This has encouraged sharp practices in the petroleum sector as some unscrupulous so called importers buy the fuel from NNPC and turn round to claim this was imported making huge profit for themselves and their cohorts at the expense of government, because of this, some cabals in the industry would ensure that the refineries never operate at full capacity to ensure that we always import, no matter how much money government pumps in on turn around maintenance of the refinaries. The low pump price of fuel also makes it impossible for private businesses to set up refineries.

Having said all that I feel it is too early to remove fuel subsidy. Government needs to do the following first
1. Contract out the running of the refineries to multinationals in the industry who would be given a free hand to operate. These multinationals would be able to shore up production, break the cabals and reduce need for imported fuel.
2. Fix electricity supply in country. A huge chunk of the fuel people buy is to run generator. For instance I currently fill my car twice in a month (total of 100 litres) but that 100litres of fuel cannot run my generator for a week. So 80% of my fuel consumption goes on power generation. If electricity supply is fixed fuel demand in the country would drop by over 60%.

Once this is done government can go ahead and remove the subsidy. This would initially jerk up the price of fuel but the impact on the masses would be reduced (remember with constant electricity cost of production would drop, goods and services would become cheaper). Gradually competition would build and the pump price would drop, similar to what happened in the telecoms market after GLO came into the market.

Great analysis.
The govt needs to open the full package of their alternate offering to the people, so we can have a healthy discussion to choose the best path. Whatever the case may be, we cannot continue to be held to ransome by the fuel importing mafia, something needs to be done to break their back and sieze Nigeria back from networks with deep tentacles everywhere that sabotage our refineries and keep us in the shameful bind of an oil producer that imports fuel.

@Poster, fuel subsidy is NOT being removed. It is simply being RE-BRANDED. The so-called Safety net many of you are applauding, it itself engineered to subsidize fuel, is it not? What stops the corrupt importers from gaining from that, in about the same way they gain from the current program? It is simply a matter of change of strategy on their end, since there seems no plans to penalize the so-called corrupt importers. The Government has made little attempt to cause those it has identified as corrupt, under the current system, to pay back what they have stolen. So what changes for them, order than their need to do business/make their money a different way?

If you don't fight corruption, how does re-labeling the subsidy product make it go away? Notice how those shouting against the change are ordinary Nigerians and not the corrupt benefactors of the current system. They are probably busy coming up with new ways to continue business as usual.