PRICE CAPS AND STRIKES CAUSE NIGERIA'S DOWNSTREAM

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 002574

SIPDIS

E.O. 12958: DECL: 12/17/2013
TAGS: EPET EINV ELAB PGOV NI
SUBJECT: PRICE CAPS AND STRIKES CAUSE NIGERIA'S DOWNSTREAM
DEREGULATION PLAN TO SPUTTER

REF: A. ABUJA 1700

B. LAGOS 2287

C. LAGOS 2422

D. LAGOS 2069

E. LAGOS 2147

F. LAGOS 2330

G. LAGOS 2363

H. LAGOS 2387

Classified By: J GREGOIRE FOR REASONS 1.5 (B) AND (D)


1. (C) SUMMARY: Barely 60 days after President Obasanjo
declared Nigeria's downstream petroleum sector officially and
completely deregulated, and 30 days after he replaced the
head of the powerful national petroleum corporation, a GON
regulatory agency shut down fuel stations of a US-based
company and announced regional price caps on gasoline sales.
A second pricing advisory authority more in line with the
President's views is cautiously attempting to nullify the
price caps, but marketers are wary of making any moves that
will bring the wrath of regulators upon their gas stations.
As organized labor threatens another mass action, this time
over his privatization policies, the President is walking a
fine line between placating unions and activists who seek
relevance in a dissatisfied but largely unmotivated society,
and his method of enacting government reform by executive
fiat. END SUMMARY.

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You Call this Deregulation?
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2. (SBU) A deregulated downstream petroleum sector had been
chugging along since President Obasanjo suddenly did away
with price-caps and other vestiges of government control on
October 1 (ref A),shuffled his top petroleum advisors in
early November, and replaced the head of the Nigerian
National Petroleum Corporation with someone seen as
supportive of his deregulation policies (ref B). However,
efforts by the Department of Petroleum Resources (DPR) to
re-impose price caps on the sale of gasoline have undercut
the President's tough rhetoric, and have forced fuel
marketers to second-guess the environment in which they
believed they were doing business.


3. (C) On December 8, the DPR announced publicly that it was
imposing new price caps on gasoline sales in Nigeria.
According to the DPR, Lagos retail prices are not to exceed
41 naira per liter (Lagos market prices had been hovering
between 39.90 and 42 naira per liter),Abuja prices are
capped at 42.50 naira, and a ceiling range of 45 to 48 naira
per liter is set for Nigeria's northern region. (As we have
seen since deregulation began, attention is being paid only
to the price of gasoline; other fuels, such as diesel and
kerosene, which are important industrial and consumer
products throughout Nigeria, are not affected (ref C).)
DPR's latest action followed a series of advertisements taken
out in Nigerian daily newspapers announcing price caps by
state. Meanwhile, according to John Pototsky, Managing
Director of Mobil Producing Nigeria, the DPR closed some of
the company's fuel stations and arrested the managers for
charging what the agency felt were too high prices. Mobil
stations were closed for two weeks in the large, commercially
busy city of Ibadan, north of Lagos. The stations are now
open, and Mobil is keeping its prices within the bounds set
by DPR.


4. (C) Mobil's Pototsky told Econoff on December 13 that the
council established by the President last summer to help
usher in his deregulation scheme, the Petroleum Products
Pricing Regulatory Authority (PPPRA),met with marketers
several times in recent weeks and has assured them that, DPR
actions and announcements notwithstanding, the downstream
sector remains deregulated and retailers should feel free to
charge market prices for their fuel products. Pototsky added
that now that he has his stations open again, he is not going
to be the first to cross the line in the sand drawn by DPR.
Should other marketers follow Pototsky's lead, de facto price
caps will remain in effect across Nigeria, regardless of the
PPPRA's assurances that the caps have been lifted, because
marketers fear DPR more than they trust PPPRA. (This is not
the first time Mobil has been targeted by deregulation foes;
during the run-up to a nationwide strike in October (ref D),
Mobil stations were specifically targeted for pickets and
threats of violence by labor unions and enforcers sent to
counter price increases (ref E).)

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Obasanjo Throwing Labor a Bone?
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5. (C) When asked where he thought the new Group Managing
Director of NNPC, Funso Kupolokun, stood on the matter,
Pototsky said Kupolokun will say and do whatever the
President needs at any given moment. Pototsky said the
President is probably trying to throw some sort of bone to
the unions by allowing the DPR to publicly state it is
imposing price caps, while having PPPRA attempt to quietly
soothe fuel marketers' jitters by claiming the sector remains
deregulated.


6. (SBU) Unions and other civil society organizations have
tried to use fuel price increases as a means to mobilize
Nigerians to stand up against what they feel is a presidency
acting unilaterally and undemocratically (refs F, G). The
activists lost steam after an aborted nationwide strike in
October, but have been again calling for mass action
beginning January 1, this time over disagreement with the way
the President has handled the move to privatize the nation's
chronically flagging oil refineries (ref H). The petroleum
industry unions have stated they have no objection to
refinery privatization in principle, but believe the
government is rushing the process, and the unions want proof
that legitimate buyers with technical expertise will assume
control of the refineries.


7. (C) In what may be another attempt to assuage unions
enough to keep them from striking on January 1, the President
may meet with union leaders on December 17 to discuss the
status of the privatization plan. Also, the Director General
of the Bureau of Public Enterprises (BPE),the agency
overseeing GON parastatal privatization, was recently quoted
as saying only institutional investors, rather than
individuals, will be allowed to purchase controlling shares
of public enterprises, and that no refineries will be sold
yet this year (contrary to the GON's previous goal of selling
at least one of the four by the end of 2003). Mobil's
Pototsky told Econoff he doubts the unions will actually
begin a strike on New Year's Day, in part because so many
Nigerians and expatriates living in Nigeria will be away from
home for the holidays, which will reduce the number of
available workers who might support a strike, and thus limit
a strike's impact. Pototsky surmised that if the unions
manage to gain enough momentum to pull off a mass action, it
will be during the second or third week of January at the
earliest.


8. (C) COMMENT: The DPR's moves to impose price caps, labor
unions' calls for a strike in opposition to the GON's
refinery privatization plan, nd fuel supply chain problems
(septel),all pose challenges to the President's deregulation
plan. If Obasanjo is allowing DPR to play on the sympathies
of unions and civil society activists in hopes of buying him
breathing room, his Administration will likely have to
release at least some details of the letters of interest from
potential partners wishing to buy control of the nation's
refineries (due November 14). But, if the GON ultimately
appears to be placating traditional cronies through the
refineries' sales (ref H),the President may eventually find
little wiggle room left in the face of mass action.
Regardless of the likelihood of a strike, as Jules Harvey,
Managing Director of Texaco, recently said at a business
luncheon, "This is only the beginning of a very long and
complicated process of deregulation." END COMMENT.
HINSON-JONES