Bloomberg News

Nigeria Defends End of Fuel Subsidies as Workers Plan Strike

January 07, 2012

(Updates with MTN shares in 10th paragraph, comments by military spokesman 19th.)

Jan. 5 (Bloomberg) -- Nigeria’s government vowed to stick to its decision to end fuel subsidies as protests against the doubling of gasoline costs mounted and workers vowed to shut ports and oil operations in Africa’s largest crude producer.

While it’s a “difficult decision,” the government will proceed with its action, Information Minister Labaran Maku told reporters in Abuja, the capital, yesterday. A nationwide strike from Jan. 9 will cause “greater harm” to people, he said.

The labor action “could have the potential to significantly slow oil output and disrupt much of the country’s transport infrastructure and services,” Sebastian Boe, a political analyst at IHS Global Insight in London, said in an e- mailed note.

President Goodluck Jonathan abolished 1.2 trillion naira ($7.5 billion) of subsidies on Jan. 1, promising to use the savings to boost investment in power plants and roads in Africa’s most populous nation. Nigeria imports more than 70 percent of its fuel because of a lack of refining capacity.

“We believe the scrapping of the subsidy makes sense from a macroeconomic point of view,” Leon Myburgh and Coura Fall, Africa strategists at Citigroup Inc. in Johannesburg, wrote in an e-mailed note today. “But politically the government needs to prove it will be able to improve service delivery if it wants popular support for the decision.”

Debt Situation ‘Unsustainable’

Maintaining fuel subsidies would leave Nigeria’s debt situation “unsustainable” and make it “impossible” for investors to build refineries, Central Bank of Nigeria Governor Lamido Sanusi told the British Broadcast Corp. yesterday.

“Subsidies should be subsidies for production and not for consumption,” he said. “If we are going to borrow, it is better to invest that borrowing in infrastructure, in power, in production or in subsidizing productive capacity like refineries.”

Oil workers will join the strike called by the Trade Union Congress and Nigerian Labor Congress, Babatunde Ogun, president of the Petroleum and Natural Gas Senior Staff Association of Nigeria, said in a phone interview yesterday. The Conference of Nigerian Political Parties, which represents more than 30 political bodies, supports the action, Osita Okechukwu, a CNPP spokesman, said in a statement today.

Nigeria produced an average 2.2 million barrels of crude a day in December, according to data compiled by Bloomberg, and is the fifth-biggest source of U.S. oil imports. At least 90 percent is pumped by Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA in joint ventures with the state-owned Nigerian National Petroleum Corp.

MTN Shares Fall

MTN Group Ltd., Africa’s biggest mobile-phone operator, posted its biggest two-day decline since January 2009 and fell 5.4 percent at the close of trading today in Johannesburg trading, on concern the end of the subsidy will cut consumer spending power in the company’s largest market.

“People will have to choose between buying phone airtime and paying for transportation,” said Khulekani Dlamini, head of research at Cape Town-based Afena Capital. The end of the subsidy “is the major issue” for the stock price, he said.

Almost two-thirds of Nigerians live on less than $1.25 a day, according to data from the United Nations. Inflation was unchanged at 10.5 percent in November, the statistics office said on Dec. 19.

Tangible Benefits

“Cheap petrol is viewed by many Nigerians as the only tangible benefit they receive from the state, hence the widespread anger,” Ashley Elliot, a Nigeria analyst at London- based Control Risks, said in an e-mailed response to questions yesterday.

About 300 protesters in the northern city of Kano were injuried when the police dispersed them using tear gas today, according to Abubakar Ibrahim, a student leader.

“We will continue with the struggle protesting against the barbaric action, and the crackdown will not deter us unless we achieve our goals,” Ibrahim said in an interview.

Kano Police Commissioner Ibrahim Idris said in a phone interview that his forces dispersed the protesters because “hoodlums” had infiltrated the demonstrations at the city’s Silver Jubilee Square.

Excessive Force

London-based Amnesty International today urged the Nigerian authorities in a statement to end the use of excessive force against protesters after one person was killed in the central state of Kwara and the police were reported to have used tear gas and have beaten demonstrators.

The strike action comes as Nigeria’s government battles Islamic militants in the north, who killed at least 43 people and wounded 73 in a Christmas day bombing of a church near Abuja. Jonathan declared a state of emergency in some northern regions on Dec. 31.

Two suspected Boko Haram militants were shot dead after they attacked and killed two civilians yesterday in Maiduguri, capital of Borno State, said Hassan Mohammed, a military spokesman in the region. Three bombs were detonated in separate attacks yesterday in northeast Nigeria, including one targeting the Nigeria Customs Barracks in Maiduguri, he said.

Boko Haram, a group which draws inspiration from Afghanistan’s Taliban movement, today claimed responsibility for the attacks in an e-mailed statement, saying they marked the expiration of a three-day ultimatum for Christians to leave the north.

“President Jonathan, already under fire for his purportedly weak response to ongoing violence wreaked by Boko Haram in parts of the country, faces further popular wrath from his constituents, many of whom see the subsidy decision as acquiescence to foreign organizations, such as the International Monetary Fund and the World Bank, at the expense of the ordinary Nigerian,” Boe said.

--With assistance from Maram Mazen in Abuja, Emele Onu and Vincent Nwanma in Lagos, Mustapha Muhammad in Kano, Gbenga Akingbule in Maiduguri and Sikonathi Mantshantsha in Johannesburg. Editors: Nasreen Seria, Karl Maier, Ben Holland, Antony Sguazzin

To contact the reporters on this story: Elisha Bala-Gbogbo in Abuja at ebalagbogbo@bloomberg.net; Chris Kay in Abuja at ckay5@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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