IRIN Focus on the increase in fuel prices

[This report does not necessarily reflect the views of the United Nations] Nigeria's President Olusegun Obasanjo took what appears to be one of his biggest political gambles when, barely three days after celebrating his first anniversary in office on 29 May, he increased fuel prices by some 50 percent. This marked the first time a democratically elected government was taking such a measure, which proved deeply unpopular whenever successive military rulers implemented it. Under the new price regime announced on 1 June by Jackson Gaius-Obaseki, managing director of the state-owned Nigerian National Petroleum Corporation (NNPC), the price of a litre of gasoline has increased from 20 to 30 naira; diesel has risen from 19 to 29 naira a litre and household kerosene is up from 17 to 27 naira a litre. [One naira is equivalent to US $0.01] The announcement drew widespread condemnation from the general public and opposition parties. The umbrella Nigeria Labour Congress (NLC) has asked its members, including the influential oil workers unions, to go on an indefinite strike from 8 June if the government does not rescind the decision. “All friends of labour, including professionals and progressive organisations have been invited to join the NLC in this patriotic struggle to reverse the hardship which this singular decision will bring on Nigerian masses,” the deputy president of the NLC, Precious Kiri-Kalio, said. Obasanjo had first hinted that he considered price rises inevitable when presenting his 2000 budget proposals to the National Assembly in November 1999. He argued that fuel prices must be freed from government control in order to end the acute shortages and corrupt practices that have plagued the country's fuel distribution system in recent years. The government was also keen to save on the huge amounts it was spending to subsidise imported supplies, estimated at over 70 percent of total local consumption, equivalent to 280,000 barrels per day (bpd), on account of the inability of the country's run-down refineries to meet local demand. "In the last report we came out with a subsidy of 19.4 billion naira for the first quarter," Gaius-Obaseki told reporters last week, adding that such a huge bill had become unsustainable with annual estimates expected to exceed 90 billion naira. But he added that the prices were likely to come down once the NNPC completed the current revamping of its four refineries - capacity 445,000 bpd - and the country stopped importing fuel. Government officials also justify the price increases by claiming that the smuggling of petroleum products to neighbouring countries, where fuel prices are much higher, costs Nigeria an estimated US $1.7 billion a year. Obasanjo had apparently wanted to implement the measure since January, but seemed at the time to have been deterred by threats of industrial action by the unions. NLC President Adams Oshiomhole told workers then to go on strike if higher fuel prices were announced. While the threat has not been lifted, Obasanjo seems to have grown enough political confidence to consider riding the storm, counting on good timing to give him an advantage. To mark this year's Workers Day on 1 May, he granted an increase in the minimum wage from 3,000 to 5,500 naira, perhaps as a way of preparing the ground for the fuel price hike. The latest price increases were also done at a time when the National Assembly, which had opposed the planned hike, was embroiled in a leadership crisis. But reactions to the move so far indicate more difficult days ahead for the former military ruler, who has been accused by some of his detractors of still operating in the mould of a military dictator. Protests broke out in the southwestern city of Ibadan on Friday as the reality of the new prices dawned on residents, and spread to the country’s biggest city of Lagos on 5 June. Some state chapters of the NLC have also already gone on strike to protest the new prices. Opponents of fuel price deregulation say the same reasons have always been given since former military ruler General Ibrahim Babangida began increasing fuel prices 13 years ago. As the price of petrol rose from 0.20 naira a litre in 1987 to 20 naira at the end of 1988, each successive hike was followed by inflation and riots that claimed lives in various parts of the country. But under the military rulers, the unions were banned most of the time and protests were forcefully repressed. Now, under a democratic government that will have to seek a new mandate from the electorate by 2003, the price rises remain a big political risk for Obasanjo. However, in taking the decision, Obasanjo’s government appears to be caught between a rock and a hard place. Both the World Bank and the International Monetary Fund have insisted that Nigeria must deregulate fuel prices and implement other free market reforms if it wants to qualify for any easing of its external debt of over US $30 billion. Ending Nigeria’s crippling debt crisis in order to divert the resources used for debt servicing to development efforts has been a major policy thrust of Obasanjo. But after many years of misrule, corruption and mismanagement, most Nigerians want the quick dividends promised by democracy and not the additional sacrifices for which Obasanjo seems to be asking.