NIGERIA: FUEL PRICE INCREASE MAY TRIGGER VIOLENCE

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 001091

SIPDIS


STATE FOR AF/W, INR AND EB
STATE PASS USTR


E.O. 12958: DECL: 06/20/2013
TAGS: EPET ENRG ELAB PINS PGOV NI
SUBJECT: NIGERIA: FUEL PRICE INCREASE MAY TRIGGER VIOLENCE


Classified by Ambassador Howard F. Jeter; Reasons 1.5 (B) and
(D)



1. (C) SUMMARY: On June 20, the GON announced a 65 percent
fuel price hike, increasing consumer prices from 26 naira to
40 naira per liter. Most Nigerians expected a rise in costs,
but did not expect the announcement to come so quickly nor
probably did not expect its magnitude. The move however is a
dual victory for deregulation of the downstream sector and
for easing the GON's fiscal position. However, many
Nigerians will be unhappy due to the expected rise in
transportation and some food prices. Nigeria Labour Congress
(NLC) leadership told Econoff that they had not yet decided
how to respond. END SUMMARY.



2. (C) On June 20, the GON announced the immediate increase
in the official price of gasoline from 26 naira a liter
($0.75 a gallon) to 40 ($1.25 a gallon),diesel from 26 naira
to 38 and kerosene from 24 naira to 38. The decision, though
expected by most Nigerians and in the offing for months, will
be unpopular. One of the reasons why it was announced on
Friday was so that negative passions might cool over the
weekend. Nigeria's urban poor, who rely on private
transportation, will see an immediate increase in prices.
The prices of many commodities will climb.


NLC Left in the Dark
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3. (C) Senior Nigerian National Petroleum Corporation (NNPC)
official Austen Oniwon told Econoff on June 20 the GON did
not consult with labor after making the decision to raise
prices.



4. (C) An Embassy source said he spoke with NLC President
Adams Oshiomole in Geneva last week. Oshiomole confirmed the
NLC was discussing the fuel price hikes with the GON and
would probably accept an increase of 5 to 7 naira. Oshiomole
was still in Switzerland, the source stated.



5. (C) On June 16, Econoff met with the NLC's Senior
Assistant General Secretary Olaitan Oyerinde. He opposed the
proposed hikes but was resigned to a slight increase.
Oyerinde asserted the GON's argument that a price increase
would cut smuggling, encourage investment in oil refineries,
and reduce government expenditures was erroneous. He
complained that Obasanjo had used the NNPC to bilk billions
of naira from the country, and was lifting the "so-called"
fuel subsidy to allow his cronies to profit even more.



6. (C) NLC's Salihu Lukman, Senior Assistant General
Secretary, Education and Training, confirmed that the NLC was

SIPDIS
resigned to an increase but warned that a steep increase
could spark a spontaneous public reaction. If the increase
were too much, Lukman was fearful that some workers,
especially food market workers, would riot in protest of
rising costs.



7. (C) COMMENT: The GON announced the fuel price on a
Friday, hoping that tempers will cool over the weekend. The
GON assured the public that the estimated $2 billion dollars
that will be saved on the fuel subsidy will be channeled to
health care, schools and roads. However, many Nigerians are
skeptical. Cheap fuel prices have been a benefit all
Nigerians have come to expect from the country's petroleum
industry. Now, that benefit is evaporating and many people
will not like it. Obasanjo's political opposition will
likely also try to capitalize on this. However, a price hike
was inevitable. The downstream sector needs the incentive
that any price liberalization can give. Moreover, the GON's
loss of revenue (primarily due to reduced oil production
caused by unrest around Warri) made the increase even more
imperative. Lastly, Obasanjo learned a lesson from the 100
days of his first Administration. In Nigeria, it is easier
to enact unpopular reforms at the beginning of an
Administration than later when the electorate is less
forgiving. Consideration needs to dominate.



8. (C) COMMENT CONTINUED: Right now, we do not know how the
NLC will respond. There does not seem to be much eagerness
for a strike among members of the leadership with whom we
have talked. Yet, reaction among the general membership
could be strong. If the NLC strikes, this would be the first
major challenge of the new Administration. If it does not
strike, Obasanjo will achieve a major victory. Without the
NLC taking the lead, chances of massive national protest
become remote, although localized disturbances remain
possible. END COMMENT.


JETER