Bloomberg News

Nigeria Strike May Force Jonathan to Compromise on Fuel Subsidy

January 10, 2012

Jan. 10 (Bloomberg) -- Nigerian President Goodluck Jonathan is coming under increasing pressure from a general strike and the legislature to back down on his decision to abolish fuel subsidies and to discuss phasing them out instead.

The House of Representatives has called on Jonathan to reverse the decision and the Nigeria Labour Congress and the Trade Union Congress, which called the strike that started yesterday, said they’re ready to discuss subsidies if he does. While the action hasn’t hurt exports from Africa’s top oil producer, trade in the naira currency was limited for a second day and most businesses and shops were closed.

“It would be tough for them to back down, but what they might do is try to think of some way of phasing it in, not having quite as sharp a shock,” Rachel Ziemba, a senior analyst at Roubini Global Economics in London, said in a phone interview. “It’s become a defining test for Jonathan’s administration.”

At least two people were killed by police during protests yesterday, while the the government imposed a dusk-to-dawn curfew in the northern city of Kano. Nigerian army troops guarded oil company offices and facilities in Port Harcourt, while military helicopters and boats patrolled the creeks in the Niger River delta.

Labor unions called the strike to force the government to reverse a decision to scrap fuel subsidies. It started a day after Jonathan, 54, said the Boko Haram Islamic group responsible for attacks in the north had infiltrated his administration and threatened Nigeria with a situation worse than the 1967-70 civil war.

Gasoline Prices Soar

Gasoline prices in Nigeria, where two-thirds of the population of about 164 million live on less than $1.25 a day, more than doubled after Jonathan abolished 1.2 trillion naira ($7.4 billion) of subsidies on Jan. 1. The price had been capped at 65 naira a liter, undermining investment in refineries that forced the nation to import about 70 percent of its fuel.

Jonathan may decide to try to start negotiations to remove the subsidy gradually when the government meets tomorrow, Babatunde Obaniyi, head of market risk at Lagos-based Greenwich Trust Group Ltd., said in a phone interview today.

Jonathan has pledged to use the savings from the subsidy to invest in power plants and roads in Africa’s most populous nation.

“Given President Jonathan’s insistence that the subsidy removal would not be reversed as it forms part of his transformation agenda, there may be a long drawn out battle ahead,” Gregory Kronsten, the London-based head of macroeconomic research at FBN Capital Ltd., wrote in a report today. “The government’s resolve appears very strong.”

Oil Unions

The Petroleum and Natural Gas Senior Staff Association of Nigeria, one of the country’s two main oil workers’ unions, urged Jonathan to compromise.

“Oil production is being shut down gradually in the anticipation that the government will so something, but if government doesn’t do something about the strike, then it will be shut by the weekend,” Babatunte Oke, a spokesman for the union, said today by phone from Lagos.

Nigel Cookey-Gam, a spokesman for Exxon Mobil Corp., which has the second-largest oil operations in Nigeria, said today by phone that “production and exports have not been affected by the strike.”

Royal Dutch Shell Plc’s venture, which has the biggest operations in Nigeria, said its offices in Lagos and Port Hartcourt, the hub of the oil industry, are closed. Company spokesman Precious Okolobo wouldn’t comment on the strike’s impact on production.

Military Patrols

“We’re closely monitoring the situation and the safety of our employees and contractors is our key concern right now,” he said by phone from Lagos.

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

The strike forced Nigeria, the world’s fourth-biggest cocoa producer, to stop moving beans from farms for processing and gradings, said Robo Adhuze, spokesman for the Cocoa Association of Nigeria.

Cocoa Processing Halted

“Without grading, the beans cannot be certified and bagged for export,” he said by phone from Akure in western Nigeria.

Nigerian airspace is not closed and all international flights are operating normally, Supo Atobatele, a spokesman for the National Airspace Management Agency, said by phone from Lagos today.

The strike, violence by Boko Haram militants in the north and signs of a resumption of unrest in the oil-rich Niger delta are increasing tensions in Nigeria, John Campbell, a former U.S. ambassador to Nigeria and fellow at the Council on Foreign Relations in New York, said yesterday in a telephone interview.

“Nigeria strikes me as being rather overstressed at the moment, with Boko Haram, the delta and now a general strike,” he said. “That’s a bit much for any country to deal with at the same time.”

--With assistance from Elisha Bala-Gbogbo in Abuja, Emele Onu and Vincent Nwanma in Lagos, Mustapha Muhammad in Kano, Gbenga Akingbule in Maiduguri and Tony Tamuno in Port Harcourt. Editors: Karl Maier, Andrew Atkinson

To contact the reporter on this story: 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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