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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Nigeria Ends Fuel Subsidies in Face of Protest Threats

In a nasty New Year’s Day present to his fellow Nigerians, President Goodluck Jonathan directed his administration to end fuel subsidies, effective immediately.

Petroleum Products Pricing Regulatory Agency issued a statement noting, "By this announcement, the downstream sub-sector of the petroleum industry is hereby deregulated for (gasoline). Service providers in the sector are now to procure products and sell same in accordance with the indicative benchmark price to be published fortnightly and posted on the PPPRA website." The government urged people not to panic-buy or hoard fuel, stating, "Consumers are assured of adequate supply of quality products at prices that are competitive and non-exploitative."
While the government for weeks had been floating the idea of ending the subsidy, the public received no prior warning that it would occur on 1 January. The cost of a liter of gasoline immediately jumped by 116 percent to 141 naira, or 86¢, from 65 naira (40¢) and reportedly even tripled in black market sales in some rural and urban areas.

Sure to stoke public outrage, on 30 December a Senate Joint Committee investigating the management of fuel subsidies during public hearings stated that more than 100 companies, including construction companies during January-August 2011 sharing $8.77 billion in fuel subsidies, with the amount paid since 2006 totaling and astounding $22.5 billion.
According to the committee, the oil, industrial and financial companies that benefited from the sharing of the subsidy include Oando Nigerian Plc., Enak Oil & Gas, Bovas & Co. Nig. Ltd, Obat, AP, Folawiyo Oil, IPMAN Investment Limited, ACON, Atio Oil, AMP, Honeywell, Emac Oil, D.Jones Oil, Capital Oil, AZ Oil, Eternal Oil, Dozil Oil and Fort Oil.
For less prosperous Nigerians, most view the subsidy as their sole benefit from the nation's oil wealth. Nigeria refines very little of its crude despite being a major oil producer, a situation aggravated by extensive corruption and mismanagement, which forces the country to import fuel even while it exports oil.

The response was swift, with the Nigeria Labor Congress (NLC) and Trade Union Congress (TUC) issuing a joint statement rejecting the increase and asking the public to enforce the previous price of 65 naira per liter, as both organizations promised what would be a protracted battle with the Jonathan administration over the policy.
The Nigeria Bar Association (NBA), the Civil Liberties Organization (CLO), the Conference of Nigerian Political Parties (CNPP) and the Congress for Progressive Change (CPC), among other civil society and professional organizations, endorsed the NLC and TUC stance.
The CPC issued perhaps the harshest condemnation of the policy, noting that the policy was implemented even as the National Assembly was still working on the 2012 budget, commenting, “What is bewildering, however, is that a regime that pretends to derive its legitimacy from the people is implementing a policy that obviates the need for the assent of the People’s representatives. This is a clear mutation towards fascism and declaration of war on the Nigerian people! Undoubtedly, this latest decision clearly negates the provision of Section 14(2b), which declares that, “the security and welfare of the people shall be the primary purpose of government.”
By any measure, the ending of fuel subsidies is an extraordinary step, given that Nigeria is both Africa's most populous nation and largest oil producer, exporting two million barrels per day. Several previous governments have tried to remove the subsidy but have backed down in the face of widespread public protests and reduced it instead.
Who is urging such a policy with such potential for widespread social unrest on the Jonathan administration? Well, the International Monetary Fund has long urged Nigeria's government to remove the subsidy, which costs more than $8 billion a year and IMF head Christine Lagarde recently praised Nigeria's attempts to "transform the economy."
Profiteering oligarchs aside, the ending of subsidies will hit the average Nigerian hard for a number of reasons. As Nigerian cities lack commuter railways, people have little choice but to use motorcycle and minibus taxis, whose prices are closely linked to the price of gasoline. More moderately affluent Nigerians are heavy users of fuel, not just for personal cars but also to run the generators that many households and businesses use to supplement the country's erratic electricity supplies.
Ironically, by importing refined petroleum products from neighboring Africa countries Nigeria is simply enriching its corrupt upper classes, as the majority of African refineries are largely owned by Nigerians in the private sector, including former military generals and their civil service handlers. These “businessmen” begin by stealing crude oil from the un-patrolled waters of the Niger Delta through bunkering, which is then refined in their establishments and then exported to Nigeria, all contributory factors draining Nigeria’s foreign reserve, as payments for the petroleum products have to be approved through Nigeria’s Central Bank. The scale and depth of the corrupt business practices surrounding the country’s oil industry are such that no Nigerian administration up to now has had the political will to contest them.
We’ll leave the last word for the moment to the country’s labor unions and the NLC/TUC’s joint statement, which noted, "In the next few days, the leadership of the NLC and TUC will jointly issue directives on the date that organized national strikes, street demonstrations and mass protests will commence. We shall neither surrender nor retreat."
As for the Jonathan administration simply using troops to dispel the upcoming demonstrations, the two labor organizations urged Governors, security agents and the National Assembly to side with the people as it said it was putting President Jonathan and his top aides on notice that they would be reported to the "International Criminal Court if they, by acts of commission or omission spill the blood of any Nigerian over the protests that follow their inhuman acts against the people." In a modest sign of things to come 200 demonstrators protested in the capital Abuja, chanting, "Remove corruption, not subsidy."
Removal of the fuel subsidies is one of the few issues that cut cleanly across virtually all of Nigeria’s religious, regional and tribal divisions. If the Jonathan administration ignores the countrywide protests and relies on its military and police forces to maintain order, then any repression could be the opening shots of a sub-Saharan African “Arab Spring,” which if affects Nigerian oil exports, will certainly impact the global oil energy market, giving drivers in more affluent countries a happy New Year gasoline price increase of their every own.

By. John C.K. Daly of Oilprice.com

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