Identifier
Created
Classification
Origin
05LAGOS1376
2005-09-01 16:22:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Lagos
Cable title:  

NIGERIA: FUEL PRICE HIKE AND NATIONAL STRIKE UPDATE

Tags:  EPET ELAB KDEM PGOV NI 
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011622Z Sep 05
UNCLAS SECTION 01 OF 03 LAGOS 001376 

SIPDIS

SENSITIVE

DOE FOR DAS JBRODMAN AND CGAYE
TREASURY FOR ASEVERENS AND SRENANDER
DOC FOR KBURRESS
STATE PASS TRANSPORTATION MARAD
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ
STATE PASS EX-IM FOR JRICHTER AND KVRANICH
STATE PASS OPIC FOR ZHAN AND JEDWARDS
STATE PASS TDA FOR NCABOT AND BTERNET

E.O. 12958: N/A
TAGS: EPET ELAB EPET KDEM PGOV NI
SUBJECT: NIGERIA: FUEL PRICE HIKE AND NATIONAL STRIKE UPDATE

REF: LAGOS 1350

Summary
--------

UNCLAS SECTION 01 OF 03 LAGOS 001376

SIPDIS

SENSITIVE

DOE FOR DAS JBRODMAN AND CGAYE
TREASURY FOR ASEVERENS AND SRENANDER
DOC FOR KBURRESS
STATE PASS TRANSPORTATION MARAD
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ
STATE PASS EX-IM FOR JRICHTER AND KVRANICH
STATE PASS OPIC FOR ZHAN AND JEDWARDS
STATE PASS TDA FOR NCABOT AND BTERNET

E.O. 12958: N/A
TAGS: EPET ELAB EPET KDEM PGOV NI
SUBJECT: NIGERIA: FUEL PRICE HIKE AND NATIONAL STRIKE UPDATE

REF: LAGOS 1350

Summary
--------------


1. (SBU) On August 26, the Petroleum Products Regulatory
Agency (PPPRA),citing increased international oil prices,
raised gas prices from 50 Naira/liter to 65 Naira/liter. The
Nigerian National Petroleum Corporation (NNPC) requested the
increase, claiming it could no longer shoulder the financial
burden of importing products at high international prices
but selling them domestically at lower subsidized prices.
The PPPRA claims $1 billion has been spent in 2005
subsidizing domestic fuel consumption. Civil society
immediately protested the price increase. The Nigerian
Labor Congress, (NLC),Trade Union Congress (TUC),and other
civil society groups are meeting to decide on holding a
national strike. However, weakened by half-hearted
adherence to strikes over the last year, the NLC may no
longer have the power to launch a hard-hitting strike.


2. (SBU) The PPPRA wants to eliminate all subsidies,
which would mean a price hike to approximately 72
Naira/liter for gas. However, given today's high oil
prices, a subsidy in the 5-7 Naira range would be a
palatable compromise. However, if a subsidy continues, the
PPPRA Executive Secretary advocates a "stabilization fund",
rather than allow NNPC to continue the non-transparent
process of "dipping its hand" into the national Treasury to
cover financial shortfalls caused by the subsidization. End
Summary.

PPPRA Raises Gas Price to 65N/Liter to Keep Pace with Oil
Prices; NNPC Says it Cannot Finance Growing Subsidies
-------------- --------------


3. (U) On August 26, the Petroleum Products Regulatory
Agency (PPPRA) raised the price of gasoline (termed premium
motor spirit in Nigeria) from 50 Naira/liter to 65
Naira/liter -- 7 Naira short of 72 Naira/liter price
increase announced in the press earlier. The GON directed
that prices of diesel and kerosene remain at 70 Naira/liter.

NNPC requested the price increase, on the grounds that it
can no longer afford to import, supply, and distribute at
the lower subsidized domestic prices. GON officials claim
NNPC spends about 300 million Naira daily (about $220,000
USD) financing the 30 million liters of petroleum consumed
in Nigeria.

Filling Station and Transport Costs Rise, Gas Queues
Initially Result; GON Warns Against Price Gouging
-------------- --------------


4. (U) In Lagos, most filling stations quickly adjusted to
reflect the price change; motorists griped but lined up to
buy at the new price. Queues appeared when the price was
initially announced, but have disappeared as people
grudgingly adjust to the change. Commuter costs on public
transport jumped immediately. Nonetheless, the GON is acting
to prevent "price gouging." On August 29, the GON warned
petroleum marketers to refrain from selling above the
approved price of 65 Naira/liter for gasoline and 70
Naira/liter for diesel and kerosene. The Department of
Petroleum Resources (DPR) has been directed to ensure
compliance with the new price regime. (Comment: Since the
new price became effective on August 26, marketers outside
Lagos and some states in the southwest have been selling gas
for 67 to 72 Naira/liter. End comment.)

NLC, TUC, Meeting to Discuss Strike,
Plan to Disregard Nat'l. Strike Ban
--------------


5. (SBU) Organized civil society, led by the Nigerian
Labor Congress (NLC),swiftly critiqued the price increase.
The populist National Assembly joined cause, yet again
refusing to support the Executive on the need to revise
prices upwards. The Nigerian Labor Congress (NLC) is
holding a meeting August 31 to decide its course of action.
It has already directed 36 states councils and 29 affiliate
unions to begin mobilizing for a strike. NLC leaders told
us that the labor law passed in March, inter alia, prevents
the NLC from calling a fuel strike, will not be an issue in
their discussions. The NLC has decided to ignore the law.
Nevertheless, the NLC is encouraged by the initial
conciliatory response from NNPC to the NLC's overtures. The
NLC is unlikely to take a final decision to strike without
further discussion with NNPC. The NLC will attempt to
involve the President and National Assembly in discussions,
so a lasting decision can be made.


6. (U) The Trade Union Congress of Nigeria (TUC),the
umbrella union for senior staff workers, is scheduled to
meet September 1 to decide steps to force a price reversal.
Local newspapers report the TUC had issued a 10-day
ultimatum (ending September 6),to the GON to revert to the
old pump price of petroleum products, or face mass protest
from an angry TUC-led public.

Petroleum Unions Engaged in Negotiations
--------------


7. (SBU) Members of NUPENG and PENGASSAN, the junior and
senior staff petroleum workers' unions, are currently
discussing the price hike with NNPC. Union members are
concerned about transparency in fuel pricing decisions, and
adherence to due process procedures when adjusting prices.
The two unions recently signed a communique outlining their
arguments. On Wednesday, August 31, the unions plan to
release another communique advocating better-defined
structures for fuel pricing matters. Negotiations are
progressing, and union leaders feel that a decision to
strike will not be taken soon.

Civil Society Protests Against
Fuel Price Hike Increasingly Shrill
--------------


8. (SBU) Despite these private remarks pointing to
moderation, the tenor of press comments by some civil
society groups are growing shrill. In an August 30 press
report, the NGO Environmental Rights Action/Friends of the
Earth called the price hike, "wicked and inhuman," saying
the Federal Government is "implementing the agenda of the
International Monetary Fund and the World Bank, who want
nothing for Nigeria but poverty and hardship." The
Conference of Nigerian Political Parties, an amalgam of
opposition parties, directed its members to prepare for mass
action.

PPPRA Questions Sustainability of a Strike
--------------


9. (SBU) In an August 25 meeting with the Executive
Secretary of the Petroleum Products Pricing Regulatory

SIPDIS
Agency (PPPRA) Dr. Oluwole Oluleye, he thought the NLC would
strike to test the GON's resolve regarding fuel prices. He
pointed out that if the NLC leadership did not strike,
"their constituency will throw them out." However, he
questioned if the strike would be sustainable.

Conversation with Petroleum Products Pricing Regulatory
Agency Highlights Role in Deregulation of Downstream Sector
-------------- --------------


10. (SBU) Oluleye explained the PPPRA's mandate in the
deregulation of Nigeria's downstream petroleum market.
PPPRA is responsible for controlling prices while the GON
gradually phases out subsidies. PPPRA also serves as an
advocate for deregulation within the GON, and to the
Nigerian public and press, making the (often unpopular) case
that deregulation serves the long-term needs of the Nigerian
people. PPPRA, an independent agency, reports directly to
the President.

Eliminate Fuel Subsidies, or Establish Stabilization Fund;
GON Spent nearly $1 Billion on 2005 Subsidies
-------------- --------------


11. (SBU) Dr. Oluleye told us PPPRA advocates for full
cost recovery and the elimination of all subsidies in the
downstream market. However, if the GON decides full market
pricing is too much for the public to bear, Dr. Oluleye
advocates a stabilization fund to finance the subsidy. The
GON has never budgeted a fuel subsidy. Rather, NNPC simply
"dips its hand" into the national Treasury to cover the
subsidy. Dr. Oluleye stated the GON spent about 124 billion
Naira, or nearly 1 billion USD, to subsidize fuel products
during the first 8 months of 2005. Dr. Oluleye explained
that if a subsidy were budgeted, the GON could make a policy
decision to subsidize until the fund was depleted; however,
the fund at least would have a transparent, well-understood
limit.

PPPRA: 72 Naira/Liter is Current Goal;
5-7 Naira Subsidy May be an Acceptable Compromise
-------------- --------------


12. (SBU) Dr. Oluleye explained the PPPRA would currently
like to set the fuel price at N72/liter, to allow for full
cost recovery. However, given the current quagmire over
fuel prices, Dr. Oluleye indicated a 5-7 Naira/liter subsidy
would be a reasonable compromise.

PPPRA Unlikely to Get Full Cost Recovery Now,
but Confident in Long-Term Strategy
-------------- -


13. (SBU) Dr. Oluleye has reason to be confident PPPRA
will have some success in closing the subsidy gap. He
recounted that from 2003 to January 2004, the GON managed to
eliminate the subsidy; consequently petroleum products were
readily available in the market. However, in May 2004,
international crude prices started their relentless climb.
PPPRA raised fuel prices significantly in November 2004, but
has been unable to keep pace with accelerating world prices.
As for the current impasse, Dr. Oluleye admitted PPPRA is
unlikely to get to full cost recovery in the current row.

Comment
--------------


14. The rise in international prices doubtless triggered
the GON move to raise domestic prices. Unfortunately, the
GON will be chasing a moving goal post if international
prices continue to climb. The political will to deregulate
is there, but so is the political reality of a grumbling
public, and a not so good underlying economy. In this
environment, the GON will be hard pressed to achieve
complete deregulation. The current increase may be as much
as the public will bear without igniting a backlash.


15. (U) This cable was cleared by Embassy Abuja.

BROWNE#