Nigeria Braced for Unrest As Controversial Fuel Subsidy Cuts Launched

The removal of the fuel subsidy by the government of President Goodluck Jonathan has resulted in nationwide protests, with at least one casualty reported, and elicited threats of crippling industrial action by the country’s main unions. The subsidy, which previously kept petrol prices at 65 naira (USD0.4) per litre, has been abolished despite objections from a number of civil-society and consumer groups, as well as most of the country’s legislators. The removal of the subsidy resulted in an overnight doubling of petrol prices in Nigeria, with a new price now reaching NGN150 (USD0.96) per litre.

The estimated USD8 billion saved with the withdrawal of the fuel subsidy is nominally intended for internal investment in infrastructure and development projects, as well as various job-creation schemes aimed at tackling high levels of poverty in the country. The move is in line with a series of recommendations put forth by the IMF. The new price will now be flexible, but pinned to a benchmark price set by the government twice a month, according to the government. A visit by IMF president Christine Lagarde in December 2011 appears to have forced the issue and inspired the government to enact the price hike with little advance notice, despite much public deliberation on the subject in previous months (see Nigeria: 6 October 2011: Fuel Subsidies to End in 2012, Says Nigerian Government). A communiqué from the country’s Petroleum Products Pricing Regulatory Agency (PPPRA) on 1 January 2012 launched the change, saying, "By this announcement, the downstream sub-sector of the petroleum industry is hereby deregulated for (petrol)," and directed service providers to “procure products and sell same in accordance with the indicative benchmark price to be published fortnightly”.

The hastiness of the move drew condemnation from many circles, including from the publicity secretary for the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN, a major oil-workers’ union), John Kolawole, who said that it was “sad that only a few days after Minister of Finance Ngozi Okonjo-Iweala stated publicly that no date had been fixed for subsidy removal that the government removed it”. The abrupt removal of the subsidy, which PENGASSAN also called “a reinforcement of the government’s huge credibility deficit”, resulted in a nationwide scramble as long lines developed at service stations across the country.

Union Revolt

Opposition to the fuel subsidy cuts has been led by the country’s vocal and powerful unions, and the 1 January 2012 announcement elicited swift condemnation from three of the country’s largest: PENGASSAN, the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC). Nigerian newspaper This Day reported that the leadership of the three unions met separately yesterday (3 January) in Abuja and Lagos to discuss plans for imminent, nationwide industrial action. The Joint Action Front (JAF), a committee of pro-union civil-society groups, also met yesterday to draw up a response. A spokesman for the JAF, Abiodun Aremu, called on its members to take to the streets and to shut down any petrol stations selling fuel at the new, elevated price. This sentiment was echoed by the spokesman of the National Association of Nigerian Students, Clement Olesegun, who promised his group would make the country “ungovernable” in an interview with This Day.

While the effect the fuel subsidy will have on their members’ and average citizens’ lives is the rallying call for the country’s unions, a deeper issue has also been raised by the subsidy removal: that it threatens to deflate any purported influence over policy-making that organised labour has managed to carve out for itself. The NLC, TUC and PENGASSAN, along with oil workers’ union NUPENG, are nominally represented on the PPPRA board and deny that a vote on the issue took place within the agency, accusing the president’s office of unilaterally pushing through the initiative without following proper procedure and using the PPPRA as a screen. In this vein, a PENGASSAN spokesman has challenged the PPPRA board to release information surrounding the decision, particularly evidence of the “extensive consultation with stakeholders” allegedly undertaken by the government to have taken place prior to the 1 January announcement. These accusations raise a more existential question for the role of organised labour in the country, though will not surprise many observers due to Jonathan’s track record of wielding executive clout to push bills through, including the Minimum Wage and Anti-Terrorism Bills in early 2011.

Legislature Circumvented

The apparent decision of the president’s office to push through the fuel subsidy cuts over the objections of Nigeria’s bicameral legislature has drawn vocal criticism from opposition parties and civil-society groups alike. The objections of the House of Representatives were made official in a 1 December 2011 vote, in which the lower house rejected a budget proposal incorporating the fuel subsidy cuts (see Nigeria: 5 December 2011: Nigerian Parliament Shoots Down Proposed Removal of Fuel Subsidy). The motion drew resistance from both members of the political opposition and ruling People’s Democratic Party (PDP) loyalists, particularly among its northern parliamentarians who view the fuel subsidy as one of the few perks enjoyed by constituents in their largely under-developed, oil-poor home states. Similarly to the position of the trade unions, the unveiling of the fuel subsidy cuts by the executive branch highlights the toothlessness of the legislature, which, despite still having to vote on and pass the 2012 budget and ostensibly wielding the power to quash the initiative, found their objections trumped by the scheme’s approval by the National Economic Council (NEC) in a December 2011 meeting (see Nigeria: 13 December 2011: Nigeria's National Economic Council Approves Removal of Fuel Subsidy). The NEC, composed of the governors of the country’s 36 states, as well as the members of the cabinet and the Central Bank Governor, is viewed by many as an extension of the executive and its findings on matters often make the Senate and House votes largely academic.

Civil Unrest

The most immediate and acute threat stemming from the fuel subsidy cuts remains the risk of widespread outbreaks of civil unrest around the country. Initially scattered and impromptu, protests against the measure started immediately following the government’s announcement, with several hundred people dispersed by riot police in the commercial capital, Lagos. Popular outrage against the removal has coalesced into mass demonstrations in the days following the announcement, with a crowd of at least 1,000 burning tyres, and blocking roads and access to service stations in the city. Reuters also reported the hijacking of at least one bus and the construction of roadblocks by protestors there. In northern Kano state, an angry crowd of at least 500 was confronted by riot police and there were reports of protest marches in the capital, Abuja. In Rivers State in the oil-producing Niger Delta, angry mobs blocked the major Warri-Port Harcourt highway until they were dispersed by soldiers. A potential flashpoint for the further deterioration of stability emerged in Ilorin, Kwara State, where a man was killed. The NLC leadership has accused local police of shooting the man during a protest in front of a post office, but the charge was denied by a police spokesman, Dabo Ezekiel, who said the man had been “attacked by the mob, who felt he was not one of them”. Reports on the response of the Nigerian security services mostly indicate conservative tactics focused on dispersing crowds, implying they are under orders not to exacerbate already elevated tensions with a heavy-handed response.

Impact on Oil and Gas Industry

In the long term, the removal of fuel subsidies may facilitate private investment in the oil and gas industry in Nigeria, particularly in the downstream sector. With oil exploration levels at their lowest in 10 years in Nigeria, deepwater field development has stalled while existing fields—in particular onshore fields—are nearing maturity, causing the government to expect a decline in revenue in the coming years (see World Markets Energy: Nigeria: 2 August 2011: Oil Minister Sounds Warning on Depletion of Nigeria's Onshore Assets and 22 February 2011: Exploration for Oil at a 10-Year Low in Nigeria). The 2012 government budget is based on an ambitious assumption of average oil production of 2.48 million b/d at a benchmark price of USD75/B; however, sabotage of oil pipelines and threatened militant activity could impede oil production in 2012. Hence the government is under pressure to cushion itself in the event of an unexpected decline in oil production and the accompanying fall in oil revenue, contributing to the first steps towards this deregulation of the downstream sector after stalling on the matter for several years. Simultaneously, and perhaps just as significant, is the long-term effect on the country's refinery industry. The subsidies have artificially deflated the retail price of refined petroleum, rendering Nigerian refineries uneconomic. Leaving the fuel price open to market influences could mean that refining in Nigeria becomes much more commercially viable, increasing competition and in turn facilitating much-needed private investment. At the same time, however, much higher prices are likely to lower demand.

Outlook and Implications

The initial outbreak of violence and the threats by the country’s trade unions indicate turbulent times may lie ahead in Nigeria, a problem compounded by the rise in sectarian tension following the attacks on churches by the Islamist militant group Boko Haram on 25 December 2011 (see Nigeria: 28 December 2011: Wave of Deadly Nigerian Attacks Indicates Growing Threat of Boko Haram). Former military ruler General Ibrahim Babangida likely echoed the sentiments of many observers yesterday when he told a local newspaper that the fuel price was, most significantly, ill-timed. President Jonathan, already under fire for his purportedly weak response to ongoing violence wreaked by Boko Haram in parts of the country, faces further popular wrath from his constituents, many of whom see the subsidy decision as acquiescence to foreign organisations—the IMF and the World Bank—at the expense of the ordinary Nigerian.

Thankfully for the ruling party, the 2015 general election is far enough beyond the horizon that the subsidy issue does not risk loosening its grip on all three branches of the government, although many voters are likely to carry their anger forth, possibly resulting in a further erosion of PDP power following losses in the legislature and state governorships in the April 2011 poll. More pressing is the possibility of open-ended strikes, for which the country’s various unions have promised to call, that could have the potential to significantly slow oil output and disrupt much of the country’s transport infrastructure and services. Despite the long-term economic benefits offered by the removal of the subsidy, including reinvestment of the previously allocated funds into development and job-creating infrastructure projects, as well as improvements to the private investment prospects in the Nigerian oil and gas industries, the short-term pinch felt by citizens is likely to dominate the discourse, and assurances of future benefits by the president and finance minister are sure to fall on deaf ears for the time being.