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Last Updated: Monday, 11 October, 2004, 14:15 GMT 15:15 UK
Nigeria tackles fuel subsidies
Nigerian striker
Nigerians feel strongly about cheap fuel

Subsidising cheap fuel costs the government in Abuja more than $2bn (1.25bn) a year - and President Olusegun Obasanjo has spent much of his second term in power trying to get rid of that subsidy.

Since his re-election in April 2003, Nigeria has been engulfed by four nationwide stoppages over fuel subsidies, and seen a legal battle over the extent of the right to strike.

For most Nigerians one of the last, indeed perhaps the only, advantage of being born in Africa's biggest oil producer has been cheap fuel. They do not want to see it taken away.

President Obasanjo believes the money could be better spent on improved welfare policies.

Policy battle

Since he returned to office, the price of a litre of fuel has more than doubled. A litre cost 26 naira in June 2003, but currently sells for about 53 naira ($0.40).

This week's four-day stoppage comes hard on the heels of a one-day national strike on Friday.

The stoppages are being coordinated by Nigeria's National Labour Congress, which is demanding an end to a 25% hike in fuel prices.

The NLC has won partial victories, but has failed to stop the price of fuel rising.

President Obasanjo introduced a fuel price hike immediately after returning to office.

Black market fuel along the road side in Lagos
The government wants to end smuggling and black market sales

On that occasion, he eventually settled for a rather lower price increase after NLC brought the country's commercial capital, Lagos to a standstill.

The upshot was petrol pump prices of about 36 naira instead of 40.

Next, the government tackled price controls, allowing the private sector to import and sell fuel.

Prices soared to 55 naira in May 2004, leading to another strike in June.

The increases were frozen by a court ruling which was overturned last week.

The courts have also ruled that unions should only strike over working conditions, not government policy.

The president's economic advisers say the new prices will put a stop to many old problems.

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.

Black market fuel along the road side in Lagos
The government wants to end smuggling and black market sales

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. They viewed fuel subsidies as a key test of Nigeria's faltering economic reforms.

While the subsidy survived, foreign bankers rubbished appeals for debt relief, saying Nigeria failed efficiency tests.

Now that subsidies have been scaled back, debt relief is firmly back on the agenda for Mr Obasanjo's final term.

Fuel fears prompt Lagos chaos
17 Jun 03 |  Business


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