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Last Updated: Friday, 18 July, 2003, 10:08 GMT 11:08 UK
Nigeria tackles fuel subsidies
By Mark Ashurst
BBC World Service business correspondent

Not long ago, a litre of mineral water cost more than a litre of fuel in Nigeria.

Black market fuel along the road side in Lagos
Black market fuel was commonplace during recent strikes

Subsidising cheap fuel costs the government in Abuja more than $2bn (1.25bn) a year - and getting rid of that subsidy has become the first priority of President Olusegun Obasanjo's second term in power.

Last month, immediately after returning to office, he lived up to his word by hiking the price of fuel from 26 naira, to 40.

Although the president had made no secret of his intention - spelling it out plainly on the eve of the recent presidential election - most Nigerians reacted with shock.

A general strike brought the country to a virtual standstill and, as happened during the president's first term, Mr Obasanjo eventually backed down. But this time, only a bit.

A litre of petrol now sells for 36 naira, a dramatic reduction in the subsidy.

The president's economic advisers claim victory, saying the new rate will put a stop to many old problems.

However, for most Nigerians one of the last, indeed perhaps the only, advantage of being born in Africa's biggest oil producer - cheap fuel - has been taken away.

So what's wrong with cheap fuel?

Vicious circle

First, it's an indiscriminate way to spend valuable resources. The rich, who could pay more for fuel, benefit as much as the poor, who often can't.

Many of them are still waiting for the subsidised bus service which ministers have introduced instead.

Second, so much cheap fuel has been smuggled out of Nigeria, for sale at a handsome profit in neighbouring countries, that the government is forced to import more at a higher rate - another drain on the government finances.

The situation creates a lucrative business for importers, who are often said to have a hand in the poor state of Nigeria's oil refineries.

Instead of processing Nigerian crude, many of those refineries stand idle. Simple repairs are apparently never quite finished and in places where fuel is scarce, traders can charge way above the official rate.

Foreign pressure

These are problems that Nigeria can ill afford, but they also bother the country's foreign creditors.

The largest share of Nigeria's $30bn of external debt is held by the so-called Paris Club of bilateral lenders. For them, fuel subsidies were a key test of Nigeria's faltering economic reforms.

While the subsidy survived, foreign bankers rubbished appeals for debt relief.

If the Nigerians want "to use our resources as inefficiently as they use their own", one banker told me, " we have nothing to talk about".

Now the subsidy has at least been scaled back, debt relief is firmly back on the agenda for Mr Obasanjo's final term.


SEE ALSO:
Fuel fears prompt Lagos chaos
17 Jun 03  |  Business



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