NIGERIA: FUEL SUPPLY AND PRICE REMAIN IN TENSE

1. (C) Summary: The status of fuel supply and pricing in
Nigeria remains in question as fuel marketers and labor
leaders left a stakeholders' meeting on October 16 with
little agreement but significant distrust and resentment.
Labor promises mass action at retail stations if marketers do
not sell gasoline at the price of 34 naira per liter. Mobil
fears it will be targeted for action, possibly including
violence. A technical committee will meet in early November
to discuss the mechanics of deregulation, but its likely
effect is questionable, and hard decisions regarding supply
and price must be made in the interim, leaving a volatile
situation in place. End Summary.




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DISAGREEING TO AGREE?


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2. (C) A nationwide strike was averted in Nigeria late on
October 8 when labor, fuel marketers, governors and national
legislators agreed to form a Petroleum Stakeholders Committee
(PSC) to discuss the deregulation of the downstream sector,
which President Obasanjo imposed abruptly the week before
(reftels). The Nigeria Labor Congress (NLC) publicly
described the agreement as also keeping fuel prices at 34
naira per liter, at least in the short-term (this was the
government-imposed ceiling until the president's action of
October 1).




3. (C) Confusion and hostility was seen throughout the
country this last week as fuel stations charged varying
prices for fuel (ref B), or failed to open altogether because
managers did not know at what price to sell or feared union
action. Adding to the confusion was the arrival of a
shipment of fuel imported by private marketers (ref A).




4. (S/NF) The inaugural meeting of the PSC was held in Abuja
on October 16. A communique issued after the meeting by the
Governors' Forum states that the Committee agreed to form a
technical committee to "harmonize" positions, that it found
the marketers had failed to abide by last week's agreement,
and that they should revert to a 34 naira per liter gas price
"in the interest of peace." Nonetheless, Anthony Jones, the
American Country Director of the AFL-CIO's Solidarity Center
in Nigeria (strictly protect), told Labor Officer that the
NLC feels the governors are backing away from their earlier
support of labor's position that prices should remain at 34
naira for the short-term. In a lengthy conversation with
Econoff within hours of the meeting, John Pototsky, Managing
Director of Mobil (strictly protect), characterized the
meeting as acrimonious and divisive, and the formation of a
technical committee as a sham to waste more time without
implementation of deregulation.




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LABOR RESORTS TO INTIMIDATION


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5. (S/NF) Pototsky, clearly distressed and angered by the
day's events, told Econoff that during the meeting, the NLC
issued threats that Mobil stations will be burned down if the
company does not revert to 34 naira per liter for gas prices.
He said he asked why his company was being singled out for
such action, and was told it was because some Mobil stations
sold fuel above 34 naira during the last week, and others
were most noticeably closed last weekend, after the
strike-averting agreement was to take effect. Pototsky said
he explained to the Committee his dealers closed last weekend
and early this week for two reasons: 1) NLC road transport
workers blockaded a Mobil tanker truck parking lot,
preventing drivers from re-supplying stations running empty
in the crush of consumers who were panic-buying, and 2) many
station managers found NLC members taking over their gas
pumps, ostensibly to ensure that fuel was sold at 34 naira
but with no control, and at some stations union members were
attempting to remove fuel directly from underground storage
tanks. Pototsky told Econoff he portrayed the situation to
the Committee as a security and supply problem, forcing his
stations to close hurriedly. Pototsky said that when he
offered this explanation to the Committee, NLC leader Adams
Oshiomhole left the room to consult with other union leaders,
only to return saying "the MD of Mobil is lying. Such events
did not take place."




6. (S/NF) Pototsky stressed to Econoff his belief that Mobil
stations will be targeted for union action in the coming
days, and that he does not discount the use of vandalism or
violence. Union officials told Consulate staff that a
directive has gone to all state councils urging mass action
and disruption of sales of gasoline at stations selling above
34 naira per liter, beginning Monday, October 20. The leader
of the activist group United Action for Democracy (UAD), an
umbrella organization for many NGOs that led the fight
against Abacha, told Poloff that his members will support any
NLC call to mass action. Newspapers report the unions are
enlisting the aid of the Oddua People's Congress (OPC), a
militant Yoruba faction in Southwest Nigeria, to help enforce
a 34 naira pump price. Pototsky said his belief that his
stations are at great risk in the coming days will force him
to decide whether he "caves in" and officially sells gasoline
at 34 naira, or "holds out" on his belief that the Petroleum
Products Pricing Regulatory Authority (PPPRA) deregulated the
downstream market as of October 1, letting him sell at market
prices. Pototsky said he expected a conversation with the
head of PPPRA on October 17, during which he would seek
assurances that the PPPRA and presidency support the
marketers' view that deregulation has occurred, and market
price prevails. If he does not get such assurances, he will
most likely instruct his dealers to sell gasoline at 34 naira
per liter. If he gets sufficient indication that the
administration will support marketers, he will beef up
security at his stations and sell at market price, somewhere
around 39 to 40 naira per liter.




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TANK FARMS FULL, GAS STATIONS EMPTY


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7. (S/NF) Other marketers will face the same decision as
Pototsky in the coming days. Fuel cargo imported by the
private marketers under a Unipetrol contract arrived in Lagos
last weekend (ref A), and another was expected on October 16
or 17. News reports peg the landed price of this fuel at 33
naira per liter. On October 6, Texaco executives told
Consulate officers that the company's "break even price" was
near 45 naira per liter. Pototsky told Econoff on October 16
he could profitably sell at a price six to seven naira above
landed cost, which would include transportation costs and
"bridging fees" (because of poor pipelines, the GON must
truck fuel from the port of Lagos to depots nationwide to
ensure fuel supply outside of the Lagos environs -- this
process remains no guarantee as cities in the North and East
are often without fuel). Demurrage fees (those charged by
the owners of ships for each day a cargo vessel remains in
port to offload) add a significant variable to fuel costs in
Nigeria because of the state of disrepair of the Lagos port
fuel terminal.




8. (S/NF) Pototsky told Econoff that an industry
representative asked the NLC what the marketers are to do
with the fuel they imported last week, which cannot be sold
profitably at 34 naira (while last week's shipment was
eventually disclosed in the press, it is unclear if, at the
time of the stakeholders meeting, the NLC was aware of the
shipment expected to reach port October 16/17). He said the
NLC replied they should leave it in their tanks until the
stakeholders Technical Committee reaches an agreement on
higher pump prices. Pototsky said marketers may do just that
for at least one or two weeks, but to do so would require all
retailers to rely solely on fuel supplies from the Nigerian
National Petroleum Corporation (NNPC), presumably at
subsidized rates, and he is not certain how long NNPC can
continue to provide fuel in sufficient quantities to meet
anything near demand levels (ref C). Pototsky indicated he
is not ready to begin further shipments anytime soon.




9. (S/NF) Comment. Both fuel supply and price will remain
uncertain in the coming weeks. The decision by Mobil whether
to sell at market price or revert to the former government
imposed ceiling will likely set the trend for all other
marketers. The uncertainty of this situation will linger as
long as labor acts brashly to save face, and the government
fails to intercede on behalf of the marketers in line with
the deregulation plan marketers insist the administration
promised would take immediate effect. End Comment.


JGREGOIRE
HINSON-JONES